LO'AjttJoL/vvv  KA>T^^w 


FOR  PRIVATE  DISTRIBUTION 


THE  PRESENT  FINANCIAL  SITUATION  OF 
THE  AMERICAN  RAILROADS 

CONSIDERED  WITH  REFERENCE  TO 

SENATOR  CUMMINS'  SPEECH  IN  THE  SENATE  OF  THE 
UNITED  STATES  ON  APRIL  13,  1914 


OCTOBER,   1914. 


BY 

W.  H.  WILLIAMS, 

THIRD  VICE-PRESIDENT, 
THE  DELAWARE  AND  HUDSON  COMPANY 


Compliments  of 

W.  H.  WILLIAMS 

Third  Vice-President 
The  Delaware  and  Hudson  Company 

TS. 


PAGE 

Section  "  A" — Conditions  irrespective  of  European  War       1 
First  Conclusion  : 

Yields  on   Government   Securities  (United  States, 

English,  French  and  German) 4 

Yields  on  Railroad  Securities  selected  by  Senator 

Cummins 7 

General  comment  on  foregoing__   11 

Yields  on  representative  Railroad  Securities 13 

Yields  on  securities  of  railroads,  Eastern  District.  _     18 
Fallacy  of  use  of  average   rate   paid   on   Railroad 

Bonds ___ 22 

Causes  of  impairment  of  ability  to  raise  new  capital     27 

Value  of  railroad  stocks  paying  five  per  cent 38 

Second  Conclusion  : 

Questions  of  capitalization 42 

Many  recent  investigations   demonstrate   the   rail- 
ways not  overcapitalized 43 

Official  statistics  plainly  refute  charge  of  overcapi- 
talization   44 

Alleged  overcapitalization  of  Union  Pacific 52 

Third  Conclusion  : 

Fallacy  of  considering  increase  in   net   earnings   as 

the  measure  of  success  of  business  enterprise —     56 
Increased  investment  in  road  and  equipment  1890- 
1912 _ _ 58 


TABLE  OF  CONTENTS. 


PAGE 

Section  '*  A" — Conditions  irrespective  of  European  War       1 
First  Conclusion  : 

Yields  on   Government   Securities  (United  States, 

English,  French  and  German) 4 

Yields  on  Railroad  Securities  selected  by  Senator 

Cummins 7 

General  comment  on  foregoing. _   11 

Yields  on  representative  Railroad  Securities 13 

Yields  on  securities  of  railroads,  Eastern  District.  _     18 
Fallacy  of  use  of  average   rate   paid   on   Railroad 

Bonds - 22 

Causes  of  impairment  of  ability  to  raise  new  capital     27 

Value  of  railroad  stocks  paying  five  per  cent 38 

Second  Conclusion  : 

Questions  of  capitalization 42 

Many  recent  investigations   demonstrate   the   rail- 
ways not  overcapitalized 43 

OflBcial  statistics  plainly  refute  charge  of  overcapi- 
talization  44 

Alleged  overcapitalization  of  Union  Pacific 52 

Third  Conclusion  : 

Fallacy  of  considering  increase  in   net   earnings   as 

the  measure  of  success  of  business  enterprise —     56 
Increased  investment  in  road  and  equipment  1890- 
1912 -.-     58 


SO^f^^f? 


n 

PAGE 

Aggregate  gross  receipts,  operating   expenses    (in- 
cluding taxes)  and  net  revenues 59 

Average  gross  receipts,  operating  expenses  and  net 

revenues  per  train  mile 61 

Average  gross  receipts,  operating  expenses  and  net 

revenues  per  mile  of  line 64 

Relation  of  railway  income  to  railway  capital   and 

capital  securities 65 

Additional  Suggestions  : 

Impairment  of  railway  income  by  reason  of  dimin- 
ished purchasing  power  of  money 70 

Governmental  pressure  upon  earnings 76 

Increased  competition  for  capital 82 

Railroad  securities  now  in  default 89 

Section  "  B  " — Additional  considerations  made  necessary 

by  the  European  War __     91 

Diminished   traffic 91 

Difficulties  and  excessive  cost  of  financing 100 

Conclusions __ _ 107 


THE  PRESENT  FINANCIAL  SITUATION  OF 
THE  AMERICAN  RAILROADS  CONSID- 
ERED  W^ITH  REFERENCE  TO  SENATOR 
CUMMINS'  SPEECH  IN  THE  SENATE  OF 
THE  UNITED  STATES  ON  APRIL  13,  1914. 

The  discussion  herein  will  be  arranged  in  two  sections,  as 
follows  : 

A.  Considerations  that  are  effective  irrespective  of  the 
European  War  now  in  progress. 

B.  Additional  considerations  made  necessary  by  the 
European  War. 

SECTION  A. 

Considerations  Irrespective  of  European  War. 

Fortunately,  sound  and  profitable  discussion  of  the  data 
and  conclusions  presented  by  Senator  Cummins,  and  of  the 
present  economic  situation  of  the  American  railway  industry 
can  rest  safely  upon  the  general  principle  which  he  proclaimed 
at  the  beginning  of  his  address.  This  general  principle  is 
stated  in  terms  which  serve  not  only  to  express  the  strong 
convictions  of  the  speaker,  but  as  well,  to  affect  any  thoughtful 
mind  with  convincing  force.  It  is  of  such  profound  import- 
ance, so  valuable  as  a  standard  by  which  to  test  his  con- 
clusions, as  to  warrant  the  repetition  of  his  exact  language. 
Senator  Cummins  said  : 

"  The  happiness  and  prosperity  of  the  country  are 
dependent  upon  the  safety,  adequacy  and  efficiency  of 
transportation.  Everybody  desires  that  every  railroad 
shall  be  well  constructed,  well  equipped,  and  well 
operated.     Everybody  knows  that  these  things  cannot 


be  accomplished  unless  the  compensation  for  the  service 
rendered  is  sufficient  to  pay  for  maintenance  and  opera- 
tion, and  so  to  reward  the  capital  invested  that  those 
who  have  money  to  invest  will  look  upon  the  enterprise 
as  an  attractive  one."  {Congressional  Record  of  April 
U,  19U,  p.  72^.) 

In  other  words,  it  is  recognized  and  must  be  the  basic 
principle  of  further  discussion,  that  for  the  sake  of  the  general 
welfare  of  the  United  States,  disregarding  the  possibly  selfish 
or  personal  interests  of  railway  employes,  railway  creditors, 
railway  owners  and  railway  managers,  it  is  necessary  that  the 
railway  revenues  should  continuously  supply  sufficient  funds 
to  meet  all  expenses  of  operation,  including  liberal  wages  and 
adequate  repairs  and  renewals,  to  pay  all  taxes,  and  to  afford 
a  fair  and  attractive  return  to  investors,  the  latter  safeguarded 
by  a  marginal  surplus  large  enough  to  justify  confidence  that 
it  will  not  fail  on  account  of  any  merely  temporary  industrial 
depression.  Nothing  less  would  satisfy  Senator  Cummins' 
statement  of  this  guiding  principle. 

Before  subjecting  his  practical  conclusions  to  the  test  thus 
afforded,  it  will  be  well  to  note  also,  that  Senator  Cummins 
recognizes  that  during  the  last  twenty  years  improvements  in 
railway  facilities  have  vastly  augmented  the  value  and  effi- 
ciency of  the  American  railway  system.     He  said  : 

"  One  thing  more  I  ask  you  to  bear  in  mind  as  I  pro- 
ceed. It  will,  I  think,  be  admitted  by  everyone  that  the 
physical  condition  of  the  railroads  is  better  at  this 
moment  than  ever  before  in  their  history.  I  mean  that 
the  roadbeds  are  safer,  the  rails  better  and  heavier,  the 
bridges  sounder  and  stronger,  the  station  houses  and 
other  structures  more  commodious  and  permanent,  the 
equipment  more  adequate  and  lasting,  and  the  locomo- 
tive power  greater  than  at  any  other  time  since  the  first 
railway  train  started  on  its  journey. 

"  It  follows,  of  course,  that  the  railroad  property  de- 
voted   to  the   public   service   is   more   valuable  at  this 


moment  than  at  any  other  moment  since  railroads  began. 
We  ought  to  understand  that  we  are  dealing  with  the 
most  complete  railroad  system  that  this  world  has  ever 
seen,  prepared  to  render  more  and  better  service  than  it 
ever  rendered  before,  and  all  the  declamation  about  the 
railroads  passing  into  decay  and  becoming  unsafe  or  in- 
sufficient is  the  rankest,  baldest  nonsense."  {Congress- 
ional liecord  of  April  IJ/,,  IdlJf.,  p.  721^.9). 

The  foregoing  is  not  more  than  a  fair  statement  of  a  fact 
which  can  be  verified  by  any  competent  inquirer.  The  railways 
of  the  United  States  are  at  their  highest  point  of  efficiency  and 
have,  therefore,  attained  the  state  in  which  they  represent  the 
greatest  investment  of  capital  and  the  highest  potential 
or  intrinsic  value.  If  their  value  in  the  eyes  of 
investors  is  less,  as  will  presently  be  shown,  it 
is  because  the  facts  do  not  support  the  conclusions 
which  Senator  Cummins  has  announced,  as  to  earning  power 
under  existing  rates  of  fare  and  freight  and  with  the  standard 
money  by  which  these  rates  are  measured  at  its  present  level 
of  value.  It  is  consequently  important  to  examine  these  con- 
clusions, and  the  data  on  which  they  rest,  in  detail. 

First  Conclusion. 

Senator  Cummins'  first  conclusion  appears  to  be  that  cap- 
ital currently  needed  for  railway  purposes  can  be  obtained  at 
four  per  cent  on  bonds  and  five  per  cent  on  shares.  He 
said  : — 

"  It  answers  my  present  purpose  to  say  that  railway 
bonds  yield  a  little  over  four  per  cent  and  stock  about 
five  per  cent. 

"  These  are  the  rates  of  investment  in  this  country. 
Just  now  it  may  be  that  bonds  are  difficult  to  sell,  but 
that  is  not  material  to  the  point  that  I  am  attempting 
to  make."  {Congressional  liecord  of  April  i^,  IBlJf^  p. 
7251). 


United  States  four  per  cent  bonds  of  7907  and  1925.  The 
"  actual  rates  of  interest  yielded  by  iuvestmeuts "  in  these 
bonds  from  1890  to  1909  are  stated  to  show  "  the  pure  money 
rate  accepted  and  received  by  investors,"  In  parallel  columns 
the  rates  of  yield  upon  English  consols,  French  rentes  and 
German  three  per  cents  dui'ing  the  same  years  are  shown. 
The  fact  that  the  rate  of  yield  upon  the  American  fours  was 
lower  than  that  on  French  rentes  and  German  threes  in  every 
year  but  one  (1896)  and  lower  than  that  on  English  consols  in 
fourteen  out  of  twenty  years,  including  the  last  eleven  years 
shown  in  the  table,  should  have  directed  attention  to  the  exist- 
ence of  some  complicating  circumstances,  for  no  one  has  ever 
pretended  that,  in  this  comparatively  new  country,  the  "pure 
money  rate "  of  interest  on  capital  was  ever  as  low  as  the 
contemporaneous  rate  in  European  countries.  The  fact  is 
that  the  "pure  money  rate"  has  never  since  the  Civil  War 
had  more  than  an  indirect  influence  in  fixing  the  price  of 
United  States  bonds.  These  bonds  are  notoriously  unavail- 
able for  ordinary  investment  purposes  on  account  of  the  pro- 
hibitive prices  offered  by  banking  associations  wishing  to  gain, 
in  addition  to  their  low  interest  return,  the  pecuniary  benefit  of 
their  use  as  security  for  bank  notes.  In  this  manner  the 
bankers  by  whom  they  are  purchased  are  able  to  secure,  by 
such  purchases,  not  only  the  interest  earned  by  the  bonds  but 
from  three  to  six  per  cent  per  annum,  according  to  the  state 
of  the  money  market,  upon  approximately  three-fourths  of 
their  face  value. 

It  should  be  noted,  also,  that  the  rate  of  yield  upon  these 
bonds  in  1910  and  1911  was  much  higher  than  that  shown  by 
Senator  Cummins  for  any  year  subsequent  to  1898.  The 
yields  for  1909  (the  latest  year  shown  by  Senator  Cummins), 
1910  and  1911  were  as  follows  : 


5 

Year  Yield,  per  cent 

1909 2.52  ' 

1910 2.732 

1911 - - 2.692 

1912 2.743 

^  Senator  Cummins,  Congressional  Record  of  April  14,  1914,  p.  7249. 

•  World  Almanac  for  1914,  p.  296. 
3  Calculated. 

It  must  be  apparent,  from  the  foregoing,  that  the  prices  of 
United  States  government  bonds,  quoted  by  Senator  Cum- 
mins, prove  absolutely  nothing  as  to  what  constitutes  or 
might  constitute  a  fair  or  reasonable  return  upon  American 
railway  capital. 

English  Consols.     Senator  Cummins  shows    {Congressional 

Record  of  April  H,  1914;  p.  1249)  the  rate  of  return  yielded 

by  English  consols  for  each  year  from  1890  to  1909   inclusive. 

The  highest  rate   on  these   bonds  appears  to   have  been  2.98 

per   cent  in    1909,  and  the   lowest  2.45  in  1897.     The   later 

rates  of  yield  have  been  considerably  higher,  as  will  be  noted 

from  the  following  : 

Average  price  Yield  at  that 

Year  per  £100  '  price,  per  cent  • 

X  s.  d. 

1909 _.  83  17  6  2.98 

1910_-_ 81  1  10^  3.08 

1911 79  6  3  3.15 

1912 76  3  li  3.28 

1913' _._ _ 73  3  9  3.42 

1  November  25,  1913. 

•  Whitaker's  Almanack  for  1914,  p.  533. 

•  Calculated. 

From  the  foregoing  it  appears  that  in  so  far  as  the  rate  of 
interest,  affected  to  a  minimum  degree  by  the  element  of  risk 
and  in  the  most  highly  organized  and  consequently  the  cheapest 
of  the  World's  markets  for  capital,  can  be  deduced  from  the 


6 

rate  on  English  consols,  there  has  been  an  increase,  since  the 
year  with  which  Senator  Cummins'  table  ends  and  to  a  period 
antedating  the  present  European  war,  of  about  one-half  of  one 
per  cent  or  substantially  one-sixth  of  the  former  rate.  In  this 
connection  it  should  not  be  forgotten  that  the  rate  of  interest 
on  English  consols  was  reduced  twice  during  a  comparatively 
recent  period.  The  first  reduction,  in  March,  1888,  was  from  £3 
per  XlOO  (three  per  cent),  to  X'2  15s  per  £100  (2f  per  cent) 
and  the  second  in  April,  1903,  from  the  rate  fixed  in  1888  to 
£2  10s  per  £100  (2^  per  cent).  (  Whitaker's  Almanack  for  1914; 
p.  522). 

French  Rentes.  These  are  the  national  obligations  of  a 
great  and  prosperous  people,  among  whom  the  practice  of 
frugality  and  the  habit  of  accumulation  are  most  generally  and 
highly  developed.  Furthermore,  French  patriotism  has  long 
found  one  of  its  expressions  in  widespread  distribution  of 
these  bonds  among  small  investors.  Yet  a  study  of  the  yields 
of  these  securities  shows  increases  that,  like  the  increases 
already  discussed,  indicate  a  genuine  rise  in  interest  rates. 
During  the  latest  year  shown  by  Senator  Cummins,  1909, 
these  bonds  sold  to  yield  3.09  per  cent.  Subsequent  yields 
have  been  as  follows  : — 

Year  Yield,  per  cent 

1910 3.06  1 

1911 ___ 3.14  1 

1912 _ 3.24  1 

1913 .__ 3.45  3 

1  New  York  World  Almanac  for  1914,  p.  296. 

*  Supplied  by  United  States  Department  of  Commerce. 

German  Threes.  These  obligations  show  the  highest  yield 
of  any  of  the  government  securities  cited  by  Senator 
Cummins.  His  table,  ending  with  the  year  1909,  shows  3.54 
per  cent  for  its  latest  year.  The  New  York  World  Almanac 
for  1914  (p.  2de)  gives  the  rates  of  yield  for  1910,  1911  and 


7 

1912  as  3.55  per  cent,  3.59  per  cent,  and  3.74  per  cent, 
respectively.  The  same  authority  shows  that  the  average 
yield  in  1912  of  German  three  and  one-half  per  cents  was 
3.90  per  cent  and  tliat  of  German  fours  3.96  per  cent.  In 
1913,  according  to  the  United  States  Department  of  Com- 
merce, the  yields  were,  respectively,  4.06,  4.08  and  3.95  per 
cent  for  the  German  fours,  three  and  one-half  per  cents  and 
threes. 

Chicago  and  Eastern  Illinois  General  Consolidated  and  First 
Mortgage  Bonds.  It  should  be  noted  that  although  Senator 
Cummins'  figures  (p.  7250)  show  that  these  bonds  produced 
5.24  per  cent  for  investors  in  1890  and  only  4.14  per  cent  in 
1909,  there  were  several  intervening  years  daring  which  they 
produced  less  than  the  latter  rate.  Thus,  in  the  years  1901, 
1902,  1905  and  1906,  these  bonds  yielded  at  the  rates  of  3.90, 
3.84,  3.95  and  4.06,  respectively.  During  the  years  1911,  1912 
and  1913,  these  bonds  yielded  4.35,  4.44  and  4.95  per  cent,  re- 
spectively. For  the  first  seven  months  of  1914  the  yield  was  5.60 
per  cent.  The  security  pledged  in  guarantee  of  the  payment  of 
the  principal  and  interest  of  this  issue  of  bonds  has  so  materially 
altered  that  there  is  little  value  in  any  comparisons  which  leave 
this  change  out  of  the  reckoning.  The  increase  in  the  value 
of  the  property  covered  by  the  mortgage  is  enormous  and 
there  has  also  been  a  considerable  decrease  in  the  amount 
secured  by  liens  having  priority  over  the  lien  of  this  mort- 
gage. The  following  shows  the  cost  of  the  railway  and  equip- 
ment plus  working  capital  of  the  Chicago  and  Eastern  Illinois, 
as  used  in  the  tabulations  of  the  Interstate  Commerce  Com- 
mission, and  the  amount  of  liens  having  priority  over  the 
General  Consolidated  and  First  Mortgage,  on  June  30,  1890, 
and  on  the  same  date  in  1909  and  1913  : 

Value  of  road  and  Amount 

Year  equipment  of  prior  liens 

1890 _  $27,541,805     $10,594,000 

1909__ 77,543,708       7,727,000 

1913 108.031,200       7,842,000 


Missouri,  Kansas  arid  Texas  First  Mortgage  Bonds.  These 
bonds  appear,  from  Senator  Cummins'  table  {p.  7260)  to  have 
sold  to  produce  5.20  per  cent  in  1890  and  4.01  per  cent  in  1909. 
In  the  meantime,  they  sold  so  as  to  yield  3.97  in  1905  and, 
since  1909,  sold  to  yield  4.08  per  cent  in  1910,  4.12  in  1911, 
4.22  in  1912,  and  4.43  in  1913. 

The  cost  of  road  and  equipment  and  the  working  capital, 
as  reported  to  the  Interstate  Commerce  Commission,  amounted 
to  $126,731,118.  in  1890,  $202,387,242.  in  1909,  and  $233,172,- 
454  in  1913. 

Wabash  Railroad  First  Mortgage  Bonds.  Senator  Cummins' 
table  shows  (p.  1250)  that  these  bonds  sold  to  produce  4.99 
per  cent  in  1890  and  4.24  per  cent  in  1909.  During  intervening 
years  they  sold  high  enough  to  produce  4.07  in  1902  and  4.08 
in  1901  and  1905.  At  the  average  price  of  1910  they  pro- 
duced 4.42  per  cent ;  at  the  average  price  of  1911  4.50  per 
cent ;  at  the  average  price  of  1912  4.58  per  cent  ;  and  at  the 
average  price  of  1913  4.78  per  cent.  The  prior  liens  were 
about  the  same  from  1890  to  1913,  but  the  assets  of  the  cor- 
poration increased  from  $133,434,841.  in  1890  to  $210,392,270. 
in  1909  and  $238,063,209.  in  1913. 

Chesapeake  &  Ohio  First  Consolidated  Mortgage.  The 
rate  of  yield  on  these  securities  (shown  by  Senator  Cummins' 
table,  p.  1S50)  was  5.09  per  cent  in  1890,  and  for  1909  4.13 
per  cent,  but  the  intervening  years  1899,  1900,  1901,  1902, 
1904,  1905  and  1906  show  lower  rates  of  yield  than  1909.  The 
rates  for  the  four  years  subsequent  to  1909  were  4.25  per  cent, 
4.26  per  cent,  4.35  per  cent,  and  4.59  per  cent,  respectively. 
Between  1890  and  1913  the  par  value  of  liens  having  priority 
over  this  issue  was  decreased  from  $6,979,000.  to  $142,000., 
and  the  value  of  the  assets  increased  from  $109,402,612.  in 
1890  to  $194,791,250.  in  1909,  and  $276,436,183.  in  1913. 

Chicago,  St.  Paul,  Minneapolis  c&  Omaha  Consolidated 
Mortgage.  The  rate  of  yield  shown  by  Senator  Cummins  {p. 
7250)  for  these  bonds  for  1890  was  4.96  per  cent,  and  that  for 


1909  3.95  per  cent.     Intervening  rates  which  were  lower  than 

1909  are  found  in  1901,  1902  and  1905.  Subsequent  to  1909 
these  bonds  have  yielded  higher  rates  of  return,  the  rate  for 

1910  being  4.14  per  cent,  the  rate  for  1911  4.13  per  cent,  the 
rate  for  1912  4.23  per  cent,  and  the  rate  for  1913  4.50  per 
cent.  Ahead  of  these  bonds  in  1890  were  prior  liens  amounting 
to  $10,359,800.  which  had  been  reduced  in  1909  to  $8,332,000. 
and  in  191 3  to  $7,974,000.  The  assets  amounted  to  $65,397,269. 
in  1890,  $71,855,215.  in  1909,  and  $82,538,086.  in  1913. 

Chicago,  Burlington  &  Quincy,  Nebraska  Extension  Bonds, 
secured  hy  deposit  of  First  Mortgage  Bonds  of  Nebraska  Branch 
Boads.  Senator  Cummins  shows  (p.  7250)  a  rate  of  yield  on 
these  bonds  of  4.53  per  cent  in  1890,  and  3.94  per  cent  in 
1909.  Between  these  years  the  rate  fell  to  3.47  per  cent  in 
1899,  3.42  in  1900,  3.40  in  1901,  3.50  in  1902,  3.69  in  1903,  3.72 
in  1904,  3.61  in  1905,  and  3.78  in  1906.  Since  1909  the  rate  of 
yield  has  advanced,  the  rates  for  the  four  ensuing  years  being 
4.08  per  cent,  4.11  per  cent,  4.18  per  cent,  and  4.45  per  cent, 
respectively.  The  liens  having  priority  over  this  issue  in  1890 
aggregated  $52,918,502,  in  1909  $27,862,200,  and  in  1913 
$18,662,200.  In  1890  the  assets  amounted  to  $236,777,826,  in 
1909  to  $436,260,275,  and  in  1913  to  $484,928,952. 

Central  Hailroad  Co.  of  Neio  Jersey  General  Mortgage 
Bonds.  The  rate  shown  by  Senator  Cummins  {-p.  7250)  for 
these  bonds  was  4.55  per  cent  in  1890  and  3.89  per  cent  in 
1909.  Rates  of  yield  lower  than  that  of  1909  appear  for  the 
years  1901, 1902,  1903, 1904,  and  1905.  During  the  years  1910 
to  1913,  not  covered  by  Senator  Cummins'  table,  these  bonds 
produced  4.02  per  cent,  4.06  per  cent,  4.12  per  cent  and  4.31 
per  cent.  Securities  having  a  par  value  of  $10,047,000  which 
had  priority  over  this  issue  in  1890  are  no  longer  outstanding, 
and  there  is  now  no  prior  lien.  The  assets  of  the  corporation 
amounted  to  $73,618,146  in  1890,  to  $103,966,737  in  1909,  and 
to  $119,346,178  in  1913. 


10 

Chicago,  Mihoankee  &  Si.  Paul  General  Mortgage,  Series  A 
Bonds.  The  rate  of  yield  shown  by  Senator  Cummins  {p. 
7250)  for  these  bonds  in  1890  was  4.39  per  cent  and  that  for 
1909,  3.87  per  cent.  The  rate  for  1909  was  higher  than  the 
rate  for  1898,  1899,  1900,  1901,  1902, 1903,  1904,  1905,  or  1906. 
In  1910  these  bonds  produced  4,03  per  cent,  in  1911  4.05  per 
cent,  in  1912  4.08  per  cent  and  in  1913  4.29  per  cent.  Prior 
liens  aggregating  $117,591,000  in  1890  had  been  reduced  to 
$76,816,000  in  1909,  and  to  $52,309,000  in  1913  ;  while  the 
assets  aggregating  $196,324,301  in  1890  increased  to  $443,- 
499,804.  in  1909  and  to  $595,202,515.  in  1913. 

JVeio  York,  Chicago  r&  Si.  Louis  Firsi  Mortgage  Bonds. 
The  rate  of  return  on  these  bonds  in  1890  shown  by  Senator 
Cummins'  table  (/).  7250)  was  4.38  per  cent,  and  that  for  1909, 
3.94  per  cent.  Meanwhile  lower  rates  appear  for  the  years 
1895,  1896,  1897,  1898,  1899,  1900,  1901,  1902, 1903, 1904, 1905 
and  1906.  The  yield  produced  iu  1910  was  4.04  per  cent,  in 
1911  4.03  per  cent,  in  1912  4.04  per  cent,  and  in  1913  4.25 
per  cent.  There  have  been  no  prior  liens  during  the  period 
covered  by  these  compilations,  but  the  assets  increased  from 
$51,112,528  in  1890  to  $66,463,809  in  1909,  and  to  $68,121,282 
in  1913. 

West  Shore  Firsi  Mortgage,  guaranteed  by  New  York 
Central.  The  yield  shown  by  Senator  Cummins  for  these  bonds 
(p.  7250)  was  3.88  per  cent  in  1890,  and  3.89  per  cent  in  1909, 
differing  from  the  other  bonds  in  that  the  20-year  period  shows 
an  actual  advance  in  yield.  The  only  intervening  years  in  which 
the  yield  was  as  high  as  in  1909  were  the  years  1891,  1892, 
1893,  1907  and  1908.  In  1910  these  bonds  yielded  3.96  per  cent, 
in  1911  3.97  per  cent,  in  1912  4.02  per  cent,  and  in  1913  4.21  per 
cent.  There  were  no  prior  liens  in  either  year,  but  the  assets 
of  the  Company  have  increased  from  $60,000,000  in  1890  to 
$68,415,580  in  1909,  and  to  $71,493,345  in  1913. 

It  should  be  noted  that  these  bonds  produced  a  materially 
lower  yield  in  1890  than  any  other  bonds  used  in  Senator  Cum- 


11 

mins'  table,  and  that  in  many  respects  the  conditions  surround- 
ing them  warranted  their  being  considered  as  supplying  a 
more  satisfactory  indication  of  the  real  interest  rate,  exclusive 
of  insurance  against  extraordinary  risk,  than  any  of  the  other 
bonds  used. 

General  Comment. 

Senator  Cummins  did  not  give  the  average  rates  of  yield 
for  all  the  bonds  included  in  his  table,  but  such  averages  have 
been  computed  for  the  years  1910  to  1913  inclusive.  The 
average  in  1910  was  4.13  per  cent ;  in  1911,  4.16  ;  in  1912, 4.23  ; 
and  in  1913,  4.48,  thus  showing  a  very  material  increase  over  the 
rates  of  four  years  ago,  and  over  any  rates  except  the  very  old- 
est appearing  in  Senator  Cummins'  table. 

In  connection  with  the  separate  railways  for  which  quota- 
tions have  been  given,  there  has  been  some  analysis  of  the 
quality  of  security  and  the  quantity  of  assets.  There  have 
been  many  other  changes  favorably  affecting  the  value  of  se- 
curities represented  by  these  rates  ;  among  them  the  season- 
ing of  securities  through  distribution  to  ultimate  investors  ac- 
companied by  a  reduction  in  the  floating  supply  offered  upon 
markets  and  exchanges.  The  additional  capital  employed  by 
the  companies,  in  most  cases  obtained  by  junior  issues,  has 
also  enabled  them  to  add  to  the  income  available  for  the  pay- 
ment of  interest  on  these  selected  securities,  while  the  pay- 
ment of  prior  liens  has  diminished  the  requirements  having 
priority. 

The  Chicago,  Burlington  and  Quincy  furnishes  a  typical 
instance  of  the  latter  condition.  The  interest  charges  on  the 
securities  selected  by  Senator  Cummins  throughout  the  whole 
period  amounted  to  approximately  $1,000,000  per  year.  In  1890 
the  amount  of  income  available  for  interest  on  these  selected 
securities  was  $6,956,315,  being  the  difference  between  a  total 
available  for  interest  and  similar  charges  of  $9,754,680,  and 


12 

interest  on  prior  liens  aggregating  $2,788,365.  In  1913  the 
amount  available  to  pay  this  $1,000,000  of  interest  was 
$27,864,190  or  the  difiference  between  $28,632,648  available  for 
all  interest  and  $768,458,  which  was  all  that  was  then  required 
to  pay  interest  on  prior  liens. 

A  similar  illustration  is  furnished  by  the  Chesapeake  and 
Ohio.  During  the  period  between  1890  and  1913  the  interest 
charge  on  account  of  the  issue  selected  by  Senator  Cummins 
increased  from  about  $1,000,000  to  nearly  $1,500,000.  In  1890 
this  company  had  $1,459,697  to  pay  interest,  and  there 
were  prior  liens  calling  for  $418,470  interest  ahead  of  the 
security  selected.  In  1913,  on  the  other  hand,  the  company 
had  $10,617,662  with  which  to  pay  interest  and  the  interest 
on  prior  liens  amounted  only  to  $8,520,  leaving  seven  times  the 
amount  required  for  this  selected  issue. 

Of  course,  it  is  not  to  be  understood  that  these  improve- 
ments in  the  quality  of  the  particular  securities  which  were 
selected  represent  absolute  gains  to  the  stockholders  of  the 
companies.  It  is  a  consequence  of  the  fact  that  the  selected 
liens  were  themselves,  in  many  instances  at  least,  junior 
securities  at  the  time  of  original  issue,  which  was  not  far 
from  the  beginning  of  the  period  used  by  Senator  Cummins, 
and  that  in  the  processes  of  time  they  have  become  preferred 
liens,  and  the  assets  have  been  increased  by  means  of  the 
proceeds  of  sales  of  junior  liens  and  capital  stock. 

The  Chicago  &  Eastern  Illinois  selected  securities  were 
issued  in  1887  as  a  result  of  consolidation  ;  the  Missouri, 
Kansas  &  Texas  securities  in  1890,  as  a  result  of  reorganiza- 
tion ;  the  Wabash  in  1889  as  a  result  of  reorganization  ;  the 
Chesapeake  &  Ohio  in  1889  as  a  result  of  reorganization  ; 
the  Central  Railroad  of  New  Jersey  in  1887  as  a  result 
of  reorganization  ;  the  New  York,  Chicago  &  St.  Louis  in  1887 
as  a  result  of  reorganization.  The  bonds  of  the  West  Shore 
Railroad   are   not   only  a  first   lien  on    the   property  of    that 


IS 

company  but  are  also  guaranteed  both  as  to  principal  and 
interest  by  the  New  York  Central  and  Hudson  River  Railroad 
Company. 

A  much  larger  group  of  bonds,  selected  with  better  appre- 
ciation of  the  conditions  essential  to  a  scientific  presentation 
of  the  facts  concerning  the  interest  rate,  appears  in  the 
writer's  pamphlet,  entitled  "  Railway  Credit  and  Increased 
Competition  for  Capital."  In  this  pamphlet  the  data  were 
brought  down  to  the  end  of  the  first  six  months  of  the  year 
1913,  so  that  they  have  the  advantage  over  Senator  Cummins' 
table,  which  ends  with  the  year  1909,  of  disclosing  the  ten- 
dencies of  the  last  four  years.  The  following  table  is  from 
the  pamphlet  referred  to. 


Na 


Raileo 
Loui 
New 
N.  Y 
Nort 
The: 
St.  L 
Grea 
Penn 
At.  1 
Balti. 
Balti- 
Chgo 
Chgo 
Chgo 
Color 
Denv 
Erie  : 
Centi 
Soutl 
Unioi 


Tol 
Av. 


15 


SUMMARY    OF  YIELDS   ON   SELECTED    HAILROAD    BONDS. 


Name  of  issuing  body 


Typo  of  bond 


1903         1904 


Railroads 

Louisville  &  Nashville 

New  York  Central  R.  R... 
N.  Y.  Ont.  &  West.  R.  R.. 

Norlliern  Pacitic 

The  Reading  Company  .... 

St.  Louis  S.  Western 

Great  Northern 

Pennsylvania  R.  R 

At.  Topeka  &  Santa  Fe. . .. 

Baltimore  &  Ohio 

Baltimore  &  Ohio 

Ohgo.  Burl.  &Quincy 

Chgo.  Mil.  &  St.  Paul 

Ohgo.  Rock  Is.  &  Pac. 

Colorado  &  Southern 

Denver  &  Rio  Grande 

Erie  Railroad 

'Central  Pacilic - 

Southern  Railway 

Union  Pacific 


Unified 

Gold  Mortgage 

Refunding  1st  G.  4's. 

Prior  Lien 

leral 

First  Gold  

Collateral  Trust. 

Guaranteed  First 

General 

Prior  Lien 

Gold 

Illinois  Dio 

General 

General  Gold 

First  Mortgage 

First  CoDsol.  Gold 

Collateral  Trust 

First  Refund.  Gu 

First  Consolidated 

General  Gold 


4% 
^% 


4% 

4?„' 
H% 

i% 
3i"i 

4% 

^% 

4% 
4% 


4% 
4% 


4.02 
3.95 
4.1S) 


4.02 
4.00 
3.99 
3.83 
3.71 
3.90 
4.91 
4.11 
4.53 
4.09 


3.85 
4.09 
4.35 
444 
3.87 
3.97 


4.49 

4.04 
4.37 
3.84 


3.81 
3.94 
4.10 


3.83 
4.63 
3.9S 
4.27 
3.97 
4.20 
3.76 


4.18 
4.13 
3.95 
3.95 


4.05 
4.89 
4.03 
4.29 
3.85 


4.16 
3.90 
4.30 
403 
4.34 
4.43 
4.83 
4.18 
4.13 
4.30 
4.13 
4.05 
3.95 
4.14 
5.01 
4.39 


4.16 
3.91 
4.18 
3.95 
4.16 
4.53 
4.47 
4.16 
4.10 


4.44 
5.36 
4.24 


4.34 
3.96 
3.97 
4.05 


3.99 
4.18 
4.18 
4.84 
4.13 
4.50 


4.40 
4.46 
4.03 
4.03 
4.35 
4.06 
4.13 
4.03 
4  13 
4.33 
4.34 
4.81 
4.18 


3.98 
4.30 
4.01 
4.10 


4.07 
4.13 
4.05 
4.14 
4  33 
4-53 
4-63 
4.18 
4.64 
3.94 


4.10 
4.40 
4.50 


4.58 
4.33 
4.66 
3.97 


1913 
6mo8. 
only 


4.13 
4.44 
4.36 
4.17 
4.56 
4.75 
4.13 
4.18 
4.53 
4.37 
4.35 
4.19 
4.43 
4.71 
4.93 
4.58 
4.45 
4.75 
4.13 


Totals  . 


78.34 
3.91 


17 

The  foregoing  shows  heavy  increases  in  yields  between 
1909  and  1913,  the  general  average  being  4.08  per  cent  in  the 
earlier  and  4.41  per  cent  in  the  later  year.  The  solitary 
exception  to  this  rule  is  that  of  the  collateral  trust  bonds 
of  the  Erie  Railroad,  which  sold  almost  on  a  five  per  cent 
basis  in  1909,  owing  to  the  then  recent  financial  difficulties 
which  that  property  encountered  late  in  1907,  and  the  security 
of  which  has  very  materially  improved  during  the  last  four 
years  under  an  highly  efficient  management  and  by  reason  of 
the  self-denial  of  the  owners  of  the  equities  represented  by  its 
different  grades  of  shares  who  have  permitted  the  reinvest- 
ment of  income  which  they  might  have  insisted  upon  having 
distributed.  These  heavy  increases  in  yields  between  1909 
and  1913  are  the  equivalent  of  heavy  declines  in  the  market 
values  of  the  securities  represented  and  they  demonstrate  the 
fact  that  a  table  ending  with  the  year  1909,  like  that  presented 
by  Senator  Cummins,  does  not  adequately  present  the  facts  of 
the  present  situation. 

In  selecting  railway  securities  for  the  foregoing  table,  the 
greatest  possible  cave  was  exercised  to  choose  only  those  that 
would  afl'ord  reliable  comparisons.  It  was  recognized  that  a 
considerable  number  of  bonds  was  necessary  in  order  to  ex- 
clude merely  local  incidents  and  purely  individual  character- 
istics, and  that  every  security  used  must  be  as  representative 
as  practicable  ;  moreover,  to  be  available  for  the  purposes  of 
the  compilation,  bonds  must  mature  several  years  later  than 
1913,  i,  e.,  they  must  run  the  full  period  covered  in  the  in- 
vestigation and  several  years  beyond ;  for,  otherwise,  they 
would  not  be  trustworthy  indices  of  the  interest  rates  which 
investors  obtain  on  long  term  obligations.  Other  principal 
factors  determining  the  selection  of  securities  were — 

1.  /Relative  stability  of  values.  Issues  were  excluded  if 
their  price  fluctuations  were  predominantly  influenced  by  the 
financial  standing  of  the  issuing  company. 


17 

Tlie  foregoing  shows  heavy  increases  in  yields  between 
1909  and  1913,  the  general  average  being  4.08  per  cent  in  the 
earlier  and  4.41  per  cent  in  the  later  year.  The  solitary 
exception  to  this  rule  is  that  of  the  collateral  trust  bonds 
of  the  Erie  Railroad,  which  sold  almost  on  a  five  per  cent 
basis  in  1909,  owing  to  the  then  recent  financial  difficulties 
which  that  property  encountered  late  in  1907,  and  the  security 
of  which  has  very  materially  improved  during  the  last  four 
years  under  an  highly  efficient  management  and  by  reason  of 
the  self-denial  of  the  owners  of  the  equities  represented  by  its 
different  grades  of  shares  who  have  permitted  the  reinvest- 
ment of  income  which  they  might  have  insisted  upon  having 
distributed.  These  heavy  increases  in  jdelds  between  1909 
and  1913  are  the  equivalent  of  heavy  declines  in  the  market 
values  of  the  securities  represented  and  they  demonstrate  the 
fact  that  a  table  ending  with  the  year  1909,  like  that  presented 
by  Senator  Cummins,  does  not  adequately  present  the  facts  of 
the  present  situation. 

In  selecting  railway  securities  for  the  foregoing  table,  the 
greatest  possible  care  was  exercised  to  choose  only  those  that 
would  afford  reliable  comparisons.  It  was  recognized  that  a 
considerable  number  of  bonds  was  necessary  in  order  to  ex- 
clude merely  local  incidents  and  purely  individual  character- 
istics, and  that  every  security  used  must  be  as  representative 
as  practicable  ;  moreover,  to  bo  available  for  the  purposes  of 
the  compilation,  bonds  must  mature  several  years  later  than 
1913,  i  e.,  they  must  run  the  full  period  covered  in  the  in- 
vestigation and  several  years  beyond ;  for,  otherwise,  they 
would  not  be  trustworthy  indices  of  the  interest  rates  which 
investors  obtain  on  long  term  obligations.  Other  principal 
factors  determining  the  selection  of  securities  were — 

1.  Relative  stability  of  values.  Issues  were  excluded  if 
their  price  fluctuations  were  predominantly  influenced  by  the 
financial  standing  of  the  issuing  company. 


18 

2.  Broad  and  active  Tnarhet.  To  be  admitted  to  the  tabu- 
lation a  security  must  be  dealt  in  in  sufficient  volume  to  make 
the  quotations  representative  of  actual  market  value. 

3.  Uniform  and  uninterrupted  payment  of  interest.  With- 
out this  qualification  a  security  would  not  sell  at  a  market 
price  conforming  to  any  particular  income  yield,  but  on  a  po- 
tential basis  of  prospective  increase  or  decrease  in  the  net 
return.  Hence  securities  not  having  this  quality  were  ex- 
cluded. 

A  somewhat  wider  basis  of  selection  was  found  to  be  nec- 
essary in  order  to  present  a  special  study  of  the  interest  rates 
demanded  of  railways  located  east  of  Chicago  and  the  Missis- 
sippi river,  and  north  of  the  Ohio  and  Potomac  rivers,  but  the 
foregoing  rules  were  applied  as  rigorously  as  the  conditions 
permitted.  A  table,  also  taken  from  the  pamphlet  previously 
named,  showing  more  than  fifty  securities  of  railways  so  lo- 
cated, appears  below. 


CO  lo  CO    :  o 
CO  "^  ^    •  ^ 


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t^  lO  CO  CO  *} 
00  O  C?  iX>  o 

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t-  O  SS  3S  O 
00  O  T-<  O  CO 

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t-  cs  o  w  o 

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CO  "^  "^  "^  "^ 


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CO  ^"  -^  -*  o 


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co"  ri'  CO*  CO  CO 


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21 

The  results  disclosed  by  the  foregoing  do  not  differ  at  all 
materially  from  those  in  the  table  first  introduced.  Among 
the  fifty-eight  securities  for  which  the  1913  yields  are  given, 
there  are  ouly  two  which  do  not  show  very  substantial  in- 
creases in  yields,  that  is  decreases  in  market  value,  between 
1909  and  1913.  And  the  exceptions  are  issues  of  the  Erie 
Railroad,  the  reasons  for  which  have  already  been  explained. 
It  should  be  noted  that  in  the  single  instance  in  which  the 
table  last  above  shows  a  security  that  is  also  included  in  the 
table  presented  by  Senator  Cummins  (^.  7350),— t\mt  of  the 
Central  Railroad  of  New  Jersey,  General  Mortgage, —  the  rates 
of  yield  shown  for  the  years  that  appear  in  both  tables  are 
substantially  identical. 

The  following  summary  of  the  facts  in  the  tables  taken  from 
the  writer's  pamphlet  is  significant. 

Rate  of  Annual  Yield  to  Investors. 

Year.  First  table.     Second  table. 

1903 4.10  4.06 

1904 4.05  4.03 

1905 3.91  3.93 

1906 4.01  4.04 

1907 4.30  4.31 

1908 4.30  4.42 

1909 4.08  4.11 

1910 . 4.21  4.26 

1911 _._  4.21  4.26 

1912 4.26  4.30 

1913 4.41  1  4.47  2 

^  First  six  montlis. 
^  First  eight  months. 

The  foregoing  shows  that  the  average  income  yielded  by 
railway  bonds  purchased  at  current  prices  was  lowest  in  1905, 
that  it  rose  heavily  in  response  to    the  financial  and  industrial 


21 

The  results  disclosed  by  the  foregoing  do  not  differ  at  all 
materially  from  those  in  the  table  first  introduced.  Among 
the  fifty-eight  securities  for  which  the  1913  yields  are  given, 
there  are  only  two  which  do  not  show  very  substantial  in- 
creases in  yields,  that  is  decreases  in  market  value,  between 
1909  and  1913.  And  the  exceptions  are  issues  of  the  Erie 
Railroad,  the  reasons  for  which  have  already  been  explained. 
It  should  be  noted  that  in  the  single  instance  in  which  the 
table  last  above  shows  a  security  that  is  also  included  in  the 
table  presented  b}*  Senator  Cummins  {p.  7550),— that  of  the 
Central  Railroad  of  New  Jersey,  General  Mortgage, —  the  rates 
of  yield  shown  for  the  years  that  appear  in  both  tables  are 
substantially  identical. 

The  following  summary  of  the  facts  in  the  tables  taken  from 
the  writer's  pamphlet  is  significant. 

B,ate  of  Annual  Yield  to  Investors. 

Year.  First  table.     Second  table. 

1903 4.10  4.06 

1904 4.05  4.03 

1905 3.91  3.93 

1906 4.01  4.04 

1907 4.30  4.31 

1908 4.30  4.42 

1909 4.08  4.11 

1910 ._  4.21  4.26 

1911 4.21  4.26 

1912 _ 4.26  4.30 

1913 4.411  4.472 

^  First  six  months. 
*  First  eight  months. 

The  foregoing  shows  that  the  average  income  yielded  by 
railway  bonds  purchased  at  current  prices  was  lowest  in  1905, 
that  it  rose  heavily  in  response  to    the  financial  and  industrial 


22 

depression  of  1907-1908,  after  which  it  fell  off  somewhat  in 
1909  and  1910,  only  to  rise  in  the  subsequent  years  (not  shown 
bj  Senator  Cummins  who,  strangely  enough,  declares — p.  7250 
— "  I  do  not  look  upon  time  as  material  ")  to  an  higher  level 
than  that  of  the  panic  of  1907  or  the  subsequent  months  of  de- 
pression. It  shows  that  the  yields  of  1913  were  higher  than  at 
any  time  during  the  previous  ten  years,  which  is  merely 
another  way  of  showing  that  values  were  lower.  And,  of 
course,  the  security  of  every  one  of  the  bonds  included  in  the 
tables  increased  during  the  ten  year  period,  as  in  most  cases 
a  greater  or  smaller  volume  of  prior  securities  was  liquidated, 
and  in  every  case  the  value  of  the  property  represented  was 
augmented  by  improvements  and  often  by  extensions. 

Bonds  of  United  States  railways.  Senator  Cummins  shows 
{p.  7251)  the  following  as  the  rate  of  interest  paid  on  the  par 
value  of  all  bonds  of  United  States  railways  : 


Year 

Hate  of 
interest 

Year 

Rate  of 
interest 

Year 

Rate  of 
interest 

1899 

4.42 

1904 

4.18 

1908 

3.92 

1900 

4.33 

1905 

4.16 

1909 

3.90 

1901 

4.34 

1906 

4.05 

1910 

3.89 

1902 

4.34 

1907 

4.11 

1911 

3.82 

1903 

4.28 

The  foregoing  figures  throw  no  light  whatever  upon  the 
rates  of  interest  actually  paid  by  railway  companies  upon  the 
sums  realized  from  sales  of  bonds,  for  they  contain  no  allowances 
for  discounts  or  commissions,  and  they  throw  no  light 
upon  the  yield  demanded  by  investors,  for  they  are  not 
adjusted  to  prices  paid  by  purchasers  for  investment.  More- 
over, they  represent  payments  under  contracts  having 
widely  variant  terms,  made  at  different  times,  through- 
out    a    period     running    back     to    the     date     of     issue     of 


23 

the  earliest  security  that  had  not  matured  prior  to  each  par- 
ticular year,  and  hence  are  largely  influenced  by  rates  of  inter- 
est that  do  not  anywhere  prevail  at  this  time.  Thus,  the  re- 
port of  the  Statistician  to  the  Interstate  Commerce  Commission 
for  the  year  1911  shows  {p.  4-0)  that  railway  bonds  aggregating; 
$1,288,055,129,  in  par  value,  paid  less  than  four  per  cent  in- 
terest in  that  year.  This  amounted  to  13.11  per  cent  of  the 
total  par  value  of  railway  funded  debt  (exclusive  of  equipment 
obligations)  and  the  whole  amount  is  represented  in  Senator 
Cummins'  average  rate  for  the  year  1911.  Of  course  none  of 
these  bonds  is  worth  par  in  the  present  market,  or  has  been 
worth  par  in  any  market  that  has  existed  for  a  long  time  and 
little,  if  any,  of  this  aggregate  produced  anything  like  its  par 
value  when  the  bonds  Avere  originally  disposed  of  in  exchange 
for  capital.  This  is  particularly  apparent  with  regard  to  secur- 
ities of  inferior  obligation.  An  illustration  is  furnished  by  in- 
come bonds  of  which  there  were  outstanding  on  June  30,  1911, 
$252,183,655,  in  par  value.  Only  $8,499,405  of  this  aggregate 
paid  as  much  as  six  per  cent  in  1911  and  $185,288,520  paid 
less  than  five  per  cent,  $84,863,520  paid  nothing  and  $11,708,- 
000  while  paying  some  interest  paid  less  than  two  per  cent. 
Later  records  are  not  available  but  it  is  probable  that  even  the 
poor  condition  of  1911  will  prove  to  be  better  than  that  which 
the  records  of  the  last  two  years  will  finally  disclose.  Obvi- 
ously the  owners  of  this  class  of  securities  will  suffer  still  more 
from  any  further  depletion  of  railway  income. 

A  very  moderate  suggestion  of  the  widely  varying  character 
of  the  securities  represented  by  these  averages  may  be  gained 
from  the  classification  for  1911  presented  by  the  Interstate 
Commerce  Commission  {Report  on  Statistics  of  Railways  for 
1911,  page  J{.0).     This  classification  is  summarized  below  : 


24 


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25 

The  foregoing,  however,  cannot  convey  anything  approach- 
ing to  an  adequate  impression  of  the  almost  infinite  variety  of 
the  securities  represented.  Considering,  for  example,  the 
item  of  mortgage  bonds,  these  include  bonds  secured  by  first, 
second,  third  and  even  fourth  mortgages ;  in  some  of  the  cases 
of  mortgages  of  each  degree  the  property  pledged  under  the 
mortgage  is  an  extensive  system,  in  others  the  main  line  or 
chief  component  portion  of  such  a  system,  in  others  it  is 
merely  a  branch  or  lateral  line  which  may  even  be  notoriously 
unprofitable  and  incapable  of  separate  existence ;  in  cases  of 
junior  mortgages  the  prior  liens  may  be  small  or  great,  and,  in 
addition  there  are  wide  difl'erences  in  the  margin  of  corporate 
income  (less  interest  on  prior  liens)  over  the  required  interest — 
that  is,  in  the  margin  of  safety.  Collateral  trust  bonds  may 
be  issued  against  stock  or  against  bonds  of  any  degree  of 
security,  they  may  be  issued  in  volume  sufficient  to  absorb  all 
or  only  a  fraction  of  the  income  obtained  from  tlie  collateral 
they  represent.  Income  bonds  may  represent  the  uncertain 
security  of  an  income  capable  of  being  earned  only  under  most 
favorable  conditions,  or  they  may  be  the  unpaid  remainder  of 
early  issues  with  priority  even  over  first  mortgages  of  later 
creation.  Conversion  privileges  are  also  examples  of  condi- 
tions attaching  to  some  bonds,  which  have  at  times  led  their 
purchasers  to  accept  lower  rates  of  interest  than  would  other- 
wise have  been  available.  These  are  only  a  few  illustrations 
of  the  vast  multitude  of  differences  and  potential  differences 
which  deprive  the  general  averages  under  consideration  of  any 
probative  force. 

Foreign  raihoay  bonds.  The  table  just  referred  to  also 
includes  (p.  7251)  average  rates  of  interest  reported  as  paid 
on  the  par  values  of  the  debentures  or  bonds  and  other 
evidences  of  indebtedness  of  English,  Welsh,  Scotch  and  Irish 
railways.  Although  the  figures  shown  appear  somewhat 
lower  than  those  shown  for  American  railway  bonds,  they  are 
also  rates  applicable  to  nominal  or  par  values,  and  have  no 


26 

relation  to  iDCome  yielded  to  investors  or  paid  as  proceeds 
actually  realized  by  the  issuing  corporations.  For  these 
reasons,  as  well  as  on  account  of  the  widely  varying  condi- 
tions in  Great  Britain  and  the  United  States,  these  figures 
have  no  utility  in  the  present  discussion  and  do  not  in  any 
way  sustain,  or  tend  to  sustain,  Senator  Cummins'  conclusion. 

The  conclusion  that  bonds  bearing  four  per  cent  interest 
are  salable  at  ])ar  is,  however,  contradicted  even  by  Senator 
Cummins'  own  figures  (p.  7250)  for  the  year  1909.  These 
data  show  that  in  1909  four  of  the  ten  securities  he  used  were 
salable  only  at  prices  that  would  yield  more  than  four  per 
cent,  and  that  in  1908  this  was  true  of  eight  of  the  ten.  It 
has  alread}^  been  shown  herein,  that  these  yields  were  much 
below  those  now  demanded  and  irrefutable  proof  has  been 
given  that  four  per  cent  bonds,  even  of  the  highest  security, 
have  not  recently  been  marketable  at  their  face  value.  For  a 
long  time  the  standard  rate  on  railway  securities  of  the 
highest  class  has  approximated  four  and  one-half  per  cent  and 
it  is  not  believed  that  during  1913  or  subsequently  any  bond 
bearing  that  rate  was  sold  so  as  to  realize  for  the  corporation 
quite  as  much  as  its  face  value — that  is,  in  every  case  some 
discount  or  commission  was  necessary. 

Furthermore,  the  rate  of  yield  used  by  Senator  Cummins, 
and  also  those  cited  herein,  relate  to  the  highest  grades  of 
railway  securities,  while  in  very  many  instances,  further 
financing  by  railway  corporations  must  be  effected  by  the 
issue  of  junior  securities  of  more  or  less  inferior  grade  to 
those  made  the  basis  of  the  foregoing  discussion.  Precisely 
as  those  who  lend  upon  real  estate  security  demand  an  adjust- 
ment between  the  amount  of  each  loan  and  the  value  of  the 
security  which  must  leave  a  substantial  equity,  American  in- 
vestors in  railway  bonds  have  insisted  that  issues  secured  by 
first  mortgages  should  be  definitely  limited  in  amounts.  The 
rapid  expansion  of  the  country's  industries  and  of  their  de- 
mands  upon    the   railways    for  the  movement  of  trafiic,  have 


27 

rendered  the  issues  thus  provided  for  insufficient  to  meet  the 
present  heavy  capital  requirements.  In  conr^equence,  the 
power  of  most  companies  to  issue  first  mortgage  bonds  has 
been,  or  will  soon  be,  completely  exhausted.  Many  railroads, 
unable  to  issue  more  first  mortgage  bonds,  and  not  able 
to  sell  stock,  have  been  forced  to  create  second  or  other 
junior  mortgages.  Obviously,  the  security  of  these  junior 
mortgages  is  inferior  to  that  of  the  prior  liens  upon 
the  same  properties,  and  this  difierence  must  be  recognized  in 
the  yields  allowed  to  their  purchasers.  Thus  the  present 
inability  of  the  railroads  to  issue  bonds  secured  by  first  or 
prior  liens  upon  their  properties,  has  forced,  and  will  con- 
tinue to  force,  them  to  satisfy  their  capital  requirements  at 
higher  rates  of  interest  by  the  sale  of  securities  having  less 
valuable  equities.  This  is  one  of  the  causes  of  the  current  high 
cost  of  railway  capital. 

In  other  respects  the  ability  of  the  railways  to  raise  new 
capital  has  been  impaired,  and  the  cost  of  the  capital  obtained 
has  been  enhanced  by  the  following  : 

1  :  Decrease  of  net  earnings  due  in  part  to  decreases  in 
rates  and  in  part  to  higher  operating  costs. 

2  :  Inability  to  obtain  any  increased  return  after  increasing 
total  investment. 

3  :  Legal  restrictions  upon  the  investment  of  the  funds  of 
savings  banks  and  insurance  companies  and  of  trust  funds  in 
railway  securities. 

4  :  Discriminations  agaiust  railway  securities  in  the  matter 
of  exemptions  from  taxation  as  contrasted  with  Federal,  State 
and  Municipal  bonds. 

5  :  Risk  attending  railway  enterprises. 

Each  of  the  foregoing  will  be  discussed  in  turn. 

I.  Decrease  of  railroad  net  earnings.  Owing  to  the  rigidity 
of  rates  and  the  inability  to  adjust  their  charges  to  conform 
with  changes  in  business  or  in  operating  conditions,  railroads, 
in   this   respect,    are   at   a  peculiar  disadvantage  as  compared 


28 

with  manufacturing  concerns.  Although  railroads  cannot 
expand  earning  capacity  as  industrial  comj)anies  do,  thoj  are, 
nevertheless,  affected  by  business  depressions.  It  is  otherwise 
with  the  public  utility  companies  whose  securities  are  now 
competing  so  strongly  for  investment  popularity  with  those  of 
the  railroads.  The  stability  of  earnings  of  public  utility  com- 
panies offers,  undoubtedly,  a  strong  investment  advantage. 
Unlike  railroads,  the  earnings  of  public  utility  corpora- 
tions, as  a  rule,  are  not  affected  by  business  depressions. 
This  was  amply  demonstrated  during  the  year  following  the 
panic  of  1907,  when,  notwithstanding  the  general  business  de- 
pression throughout  the  land,  street  railway  and  other  public 
utility  earnings  underwent  very  little  change,  although  rail- 
road and  industrial  concerns  experienced  a  very  large  falling 
off  both  in  gross  revenue  and  in  net  earnings.  A  reliable  com- 
putation shows  that  in  1908,  the  aggregate  gross  earnings  of 
164  steam  railroads  fell  11.89  per  cent  below  the  earnings 
of  1907,  whereas  the  earnings  of  203  electric  railways  were 
practically  unchanged  and  the  gross  earnings  of  10  gas  and 
electric  companies  in  large  cities  actually  increased  6.43  per  cent 
over  the  preceding  year.  The  earuiugs  of  telegraph  and  tele- 
phone companies  also  showed  an  increase  during  this  period 
of  business  depression.* 

II.  Inability  to  obtain  any  increased  return  after  in- 
creasing total  investment.  Evidence  has  been  introduced  be- 
fore the  Commission  showing  that  the  property  investment  of 
the  railroads  is  increasing  at  a  greater  ratio  than  net  operating 
income.  Thus  the  increase  in  the  capital  investment  as  of 
June  30,  1913,  over  June  30,  1910,  of  thirty-eight  eastern 
railroads  was  $659,862,586.  or  11.74  per  cent,  whereas  net 
operating  income  actually  decreased  $16,311,321.  or  4.62  per 
cent.     If  we  compare  the  property  investment  of  1903  with 


*  J.  E.  Voegelin,  "  Comparative  Effects  of  Business  Depression  on  earn- 
ings of  Railways  and  Other  Concerns,"  Railway  Age-Gazette,  Dec.  24,  1909. 


29 

1913  there  is  shown  an  increase  of  property  investment  of 
forty-six  per  cent  and  an  increase  of  net  operating  income  of 
less  than  thirty-four  per  cent.  This  condition  is  undoubtedly 
due  in  large  part  to  the  non-productive  nature  of  much  of 
railroad  capital.  Improvements  such  as  the  elimination  of 
grade  crossings,  elevation  of  tracks,  electrification  of  terminals 
and  the  like,  entail  large  capital  expenditures  without  corre- 
sponding net  return. 

In  recent  years,  notwithstanding  large  increases  in  gross 
receipts,  increases  in  expenses  and  in  taxes  have  been  so  great 
as  more  than  to  offset  the  additional  receipts,  so  that  for  the 
new  money  which  the  investor  has  put  into  the  railroads  there 
has  been  little  or  nothing  earned.  The  railroads  of  the  United 
States  as  an  whole  have  earned  continuously  since  1907, 
less  than  six  per  cent  on  their  capitalization,  as  will  be  seen 
from  the  Table  on  the  following  page.  Of  the  total  capitali- 
zation of  the  railways  on  June  30, 1914,  approximately  twenty- 
two  per  cent  was  accounted  for  under  the  existing  account- 
ing regulations  of  the  Interstate  Commerce  Commission  and 
there  can  be  no  question  as  to  its  representing  money  actually 
going  into  the  propert3^  It  is,  therefore,  significant  that  com- 
pared with  June  30,  1907,  and  with  an  increased  investment  in 
Eoad  and  Equipment  of  approximately  $273,000,000  in  1908, 
$668,000,000  in  1909,  $1,447,000,000  in  1910,  $2,243,000,000 
in  1911,  $2,823,000,000  in  1912,  $3,627,000,000  in  1913,  and 
$3,627,000,000  in  1914,  the  money  available  for  interest  and 
dividends  was  less  than  the  year  1907  in  every  year  but  1910 
and  1913,  and  the  income  over  1907  in  the  former  year  was 
sufficient  to  pay  only  3.42  per  cent,  and  in  the  latter  only 
1.28  per  cent,  on  the  additional  new  cash  that  had  gone  into 
road  and  equipment. 

This  statement  does  not  include  any  portion  of  the  cash  or 
material  on  hand,  or  other  working  balance  items,  so  that  the 
actual  return  is  less  than  stated.  Were  it  possible  to  secure 
the  figures  for  switching  and  terminal  companies,  the  returns 
would  be  further  reduced. 


PER   CENT    OF    RETURN    IN    COST    Of    ROAD    AND    EQUIPMENT    OF   ROADS    IN     THE    UNITED    STATES    FOR    EIGHT    TEARS— 1907— 1914, 
INCLUSrVE-ALSO  NET  RETURN  ON  INCREASED  CAPITAL  AND  PER  CENT  OF  INCREASED  RETURN.    (Yeabs  Ended  Jdnk  30th.) 


1914 

1913 

1912 
$15,763,599,781 

1911 

1910 

1909 

1908 

1907 

Cost  of  road  and  K«mPMKNT 

$*   16,567,662,600 

«16,567,662,600 

$15,183,570,926 

$14,387,816,099 

$13,609,183,515 

$13,213,766,540 

$13,940,379,330 

Revenues 

3,173,714,000 
2,311,186,700 

3.318,538,300 
2,355,904,000 

2,906,737,460 
2,035,718,892 

2,852,854,721 
1,976,331,864 

2,813,141,575 
1,881,879,118 

2,473,305,301 
1,650,034,304 

2,440,638,833 
1,710,401,791 

730,237,041 
78,673,794 

2,570,795,058 
1,737,698,201 

E.xpcDses 

Net    operating    revenue — in- 
cluding outside  operations. 
Taxes  

862,527,300 
150,371,100 

962,634,300 
139,836,100 

871,018,568 
120,619,874 

876,532.857 
108,309,513 

930,262,457 
98.034,593 

823,171,097 
85,1.39,554 

833,096,857 
79,640,013 

712,156,200 

833,798,100 

750,398,694 

768.313,345 

833.237,864 

738,031,543 

651,563,247 

753,456,844 

Hire  of  equipment,    cr.,   (bal- 
ance)  

=         16,232,100 
2         22,333,550 

16,233,100 
22,333,550 

13,644,834 
20,648,174 

13,616,738 
18,903,463 

11,803,699 
17,531,307 

8,118,416 
15,315,611 

14,140,351 
13,890,179 

Total 

38,555,650 

38,555,650 

34,393,008 

33,530,200 

29,334,006 

33,334,027 

28.030,530 

Total  income 

750,711,850 

871,353,750 

784.691,702 

800,733,545 

861,561,870 

761,365,570 

679,593,777 

753.456,844 

'         36,134,900 
2          35,676,800 

36,124,900 
35,676,800 

34,633,728 
83,073,300 

33,831,604 
30,371,290 

30,277.114 
38.819,675 

27,419,654 
26,111,803 

25,096,461 
23,136,983 

435,843 

Total 

71,801,700 

7l,£01,700 

67,706,928 

64,192,894 

59,096,789 

53,531,457 

48,233,444 

435,843 

Net  opbbatinq  ikoome 

678,910,150 

799,553i050 

716,985.674 

736,540,651 

802,465,081 

707,834,113 

631,860,333 

753,021,001 

Percent  en  cost  of  road  and  equip- 

4.10% 

4.83"^ 

4.55% 

4.85% 

5.58% 

5.20% 

4.78% 

lucrcased  cost  of  road  over  1907  .... 

3,637,383,380 

3,627,383,380 

2,823,220,561 

3.343,191,706 

1.447,436.879 

667,804.295 

273,387.320 

Loss       74,110,851 

46,.531,049 

Loss   36,035.237 

Loss   10,480,350 

49,444,080 

Loss  45,186,888 

Loss  121.660.668 

Percent  of  increased  return  to  in- 
creased cost  of  road  and  equip- 

Loss              2.04% 

1.38% 

Loss          1.28%- 

1  OSS          0.73% 

3.43% 

Loss         6.76% 

Loss       44.50% 

The  operating  revenues,  expenses  and  taxes  for  1914  are  obtained  from  moi  thly  returns  filed  with  the  Interstate  Commerce  Commission.    These  returns 
cover  all  Class  I  roads,  i.  e.,  roads  having  operating  revenues  of  more  than  $1,000,000.  p  r  annum.    In  1911  Class  I  roads,  which  we  have,  bore  the  following  relation 


to  the  total  for  all  roads : 

Operating  revenues, 
Operating  expenses. 

Taxes 

The  figures  shown  in  the  table 


98.22% 
96.03% 
90.85% 


estimated  on  the  basis  of  that  relationship  as 


ollows : 


(Jt)  Class  I 
(Actual) 

I $3,0.13,747,596 

3,319,433.611 

136,612,209 

i  not  till   data  necessary  to  eliminate  ; 


All  others 

(Estimated) 

$119,906,404 

91,754,089 

13,758,891 

if  same  could  be  ell 


$3,173,714,000 
2,311,186.700 
1.50,371.100 
minated   the  result  would 


Operating 

Operating  expenses 

Taxes 

S  These  figures  include  a  few  switching  and  terminal  roads,  but  we  h: 
lend  to  reduce  the  return  on  property  and  on  securities  outstanding. 

"  Inasmuch  as  no  figures  are  available  covering  the  increased  investment  in  roa  and  equipment,  during  the  year  ended  June  30,  1914,  and  to  leave  no  qu' 
tion  as  to  our  figures  being  conservative,  we  have  simply  used  the  investment  as  It  stood  n  June  30,  1913.  Also,  inasmuch,  as  no  figures  are  available  covering  H 
of  liquipment,  and  Joint  Facility  Rents  in  1914,  we  have  used  1913  figures. 

'  The  figures  for  1912  were  compiled  by  representatives  of  the  Pennsylvania  R.  I.  and  The  Delaware  and  Hudson  Company  from  the  reports  of  all  roads  flli 
with  the  Interstate  Commerce  Commission  tor  that  year. 

«  The  figures  for  1913  were  obtained  in  the  following  manner 


Road  and  equipment 15,183,570,  126 

Operating  revenues ' — '" 

Operating  expenses ] 

Taxes .".'...!*!!'.! 

Hire  of  equipment,  cr '...'...'. 

Joint  facility,  cr 

Hire  of  equipment,  dr ,.', ...'..  ]', 

Joint  facility,  dr ','.['..'.. 

From  the  Interstate  Commerce  Commission's  "  Preliminary  Abstract  of  Statis  ics  of  Common  Carriers.' 
Applying  percentages  in  column  3  to  class  I  roads,  column  4. 


1911 

%  Class  I 

Total 

Class  I  roads 

to  total 

5,183,570 

126 

11,603,747,694 

76.42 

3.8.53,854 

1-21 

2,745,236,044 

96.33 

1,976,331 

464 

1,898,005,807 

96.03 

108,809 

>13 

98,394,788 

90.85 

13.616 

r38 

12,185,389 

89.48 

18,903 

162 

17,814,.591 

94.34 

33,821 

;o4 

27,633,029 

81.70 

30,371 

J90 

29,152,746 

95.99 

1913 

Class  I  ♦ 

13,661,007,791 

3,096,877,616 

2,166.344,608 

117.956,136 

14,534,436 

21,037,719 

29,514,053 

34,246,193 


All  roads  JI 

16.567.062.600 

3.218,538,200 

2,355.904,000 

139,836,100 

16,233,100 

23,333,5.50 

36,134,900 

35,676,800 


33 

III,  Legal  restrictions  on  railroad  securities  as  savings 
bank  investme?its,  etc.  The  savings  bank  laws  of  New  York, 
Massachusetts  and  a  number  of  other  States  provide  that  no 
bonds  of  any  railroad  corporation  shall  be  available  for  legal 
investment  by  savings  banks  nnless  the  railroad  issuing  or 
guaranteeing  such  bonds  shall  have  regularly  paid  4  per  cent 
per  annum  during  a  period  of  five  or  more  years 
upon  all  its  outstanding  capital  stock  {see  Appendix 
C\  pages  57-62).  These  laws  generally  provide  further, 
that  the  outstanding  capital  stock  of  the  railroads 
shall  not  be  less  than  one-third  of  its  mortgage  indebtedness 
during  the  period  these  dividends  have  been  paid.  Moreover, 
the  classes  of  railroad  bonds  in  which  savings  banks  are 
permitted  to  invest  are  usually  limited  to  prior  lien  obliga- 
tions. It  will  be  seen  that  the  above  provisions  require  the 
railroads,  if  their  bonds  are  to  have  access  to  the  market 
supplied  by  these  banks,  to  pay  regular  dividends  and 
that  their  outstanding  bonds  shall  not  exceed  a  given  relation 
to  their  capital  stock.  The  seriousness  of  this  situation 
with  respect  to  railroad  financing  must  be  recognized  when 
consideration  is  given  to  the  fact  that  trustees  of  estates,  trust 
companies,  and  conservative  investors  are  bound,  either  in 
law  or  for  their  own  protection,  to  limit  their  holdings  to 
savings  bank  investments. 

There  has  been  already  presented  to  the  Commission  evi- 
dence showing  the  decline  in  the  ratio  of  capital  stock  to  total 
railroad  securities.  According  to  official  reports  capital  stock 
was  but  44.10  per  cent  of  total  capital  issues  in  1910,  com- 
pared with  48.85  per  cent  in  1903. 

With  respect  to  the  eastern  railroads  the  decrease  in  ratio 
of  stock  to  total  securities  during  the  same  period  was  from 
50.43  to  46.17  per  cent. 

It  sliould  be  noted  that  in  1913  the  savings  banks  of 
the   United    States,    reporting    to    the    Comptroller    of    the 


33 

III.  Legal  restrictions  on  railroad  securities  as  savings 
bank  invest /ne /its,  etc.  The  savings  bank  laws  of  New  York, 
Massachusetts  and  a  number  of  other  States  provide  that  no 
bouds  of  any  railroad  corporation  shall  be  available  for  legal 
investment  by  savings  banks  unless  the  railroad  issuing  or 
guaranteeing  such  bonds  shall  have  regularly  paid  4  per  cent 
per  annum  during  a  period  of  five  or  more  years 
upon  all  its  outstanding  capital  stock  {see  Appendix 
0,  pages  57-6^).  These  laws  generally  provide  further, 
that  the  outstanding  capital  stock  of  the  railroads 
shall  not  be  less  than  one-third  of  its  mortgage  indebtedness 
during  the  period  these  dividends  have  been  paid.  Moreover, 
the  classes  of  railroad  bonds  in  which  savings  banks  are 
permitted  to  invest  are  usually  limited  to  prior  lien  obliga- 
tions. It  will  be  seen  that  the  above  provisions  require  the 
railroads,  if  their  bonds  are  to  have  access  to  the  market 
supplied  by  these  banks,  to  pay  regular  dividends  and 
that  their  outstanding  bonds  shall  not  exceed  a  given  relation 
to  their  capital  stock.  The  seriousness  of  this  situation 
with  respect  to  railroad  financing  must  be  recognized  when 
consideration  is  given  to  the  fact  that  trustees  of  estates,  trust 
companies,  and  conservative  investors  are  bound,  either  in 
law  or  for  their  own  protection,  to  limit  their  holdings  to 
savings  bank  investments. 

There  has  been  already  presented  to  the  Commission  evi- 
dence showing  the  decline  in  the  ratio  of  capital  stock  to  total 
railroad  securities.  According  to  official  reports  capital  stock 
was  but  44.10  per  cent  of  total  capital  issues  in  1910,  com- 
pared with  48.85  per  cent  in  1903. 

With  respect  to  the  eastern  railroads  the  decrease  in  ratio 
of  stock  to  total  securities  during  the  same  period  was  from 
50.43  to  46.17  per  cent. 

It  should  be  noted  that  in  1913  the  savings  banks  of 
the   United    States,    reporting    to    the    Comptroller    of    the 


34 

Currency  owned  about  $821,500,000  of  the  railroad  bonds 
against  about  $708,000,000.  held  hj  all  other  banks,  trust 
companies,  etc.  These  figures  serve  to  suggest  the  serious 
effect  upon  these  important  agencies  for  the  encouragement 
of  thrift,  and  the  irreparable  damage  to  their  depositors  that 
would  folloAV  further  depreciation  of  railway  securities.  If 
the  margin  of  receipts  over  expenses,  taxes  and  interest  should 
continue  to  diminish  so  that  the  factor  of  safety,  required  by 
the  savings  banks  laws,  in  bonds  which  these  banks  are  per- 
mitted to  purchase,  should  disappear,  not  only  would  the  sav- 
ings banks  be  compelled  to  cease  purchases  of  the  railroad 
bonds  affected,  but  they  would  be  obliged  eventually  to  sell 
those  they  now  possess.  And  in  this  compulsory  marketing 
of  railroad  securities  they  would,  in  effect,  acknowledge  that 
they  were  disposing  of  these  securities  because  their  quality 
had  become  doubtful.  The  prices  that  would  be  realized 
under  such  circumstances  would,  necessarily,  be  little  better 
than  panic  prices  and  the  injury  to  savings  bank  depositors 
would  be  irreparable.  It  is  plain  that  the  failure  to  earn  any 
return  on  new  capital,  if  continued,  must  lead  speedily  to  this 
precise  result,  for  it  tends  to  produce  a  condition  in  which  the 
payment  of  dividends  would  be  impossible.  Further,  it  should 
be  noted  that  a  number  of  companies  whose  bonds  are  already 
in  the  savings  bank  class  are  not  able  to  obtain  new  capital 
by  the  issue  of  stock.  They  are  compelled  to  resort  to  heavy 
bond  issues,  and  since  most  other  companies  have  no  available 
means  for  new  financing  other  than  the  sale  of  bonds,  the 
market  for  securities  afforded  by  savings  institutions  is  threat- 
ened with  elimination.  This  is  another  condition  which  is 
tending  constantly  to  enhance  the  cost  of  new  capital  to  the 
railroads.  It  is,  therefore,  essential  that  railroad  earnings 
shall  be  large  enough  to  place  the  companies  in  a  financial 
position  that  will  enable  them  to  obtain  necessary  new  capital 
by  the  issue  of  shares  of  stock  and,  at  least,  to  maintain  the 


35 

position  of  the  existing  issues  of  bonds  that  are  now  available 
for  savings  bank  investment. 

The  unfavorable  market  conditions  for  railroad  securities 
have  been  further  intensified  by  recent  changes  in  insurance 
laws. 

According  to  the  insurance  law  of  New  York,  Chapter  33, 
of  1909,  paragi-aph  100  : 

"  No  domestic  life  insurance  company,  whether 
incorporated  by  special  act,  or  under  special  general 
law,  shall  invest  or  loan  upon  any  shares  of  stock  of 
any  corporation,  other  than  a  municipal  corporation, 
nor,  excepting  government,  state  or  municipal  securities, 
shall  it  invest  in  or  loan  upon  any  bonds  or  obligations 
which  shall  not  have  been  secured  by  adequate  col- 
lateral security  or  where  more  than  one-third  of  the 
total  value  of  the  collateral  security  therefor  shall  con- 
sist of  shares  of  stock." 

The  law  further  provides  that  insurance  companies  which, 
on  the  first  day  of  June,  1906,  owned  any  shares  of  stock  of 
railroads,  or  other  corporations,  other  than  public  stocks  of 
municipal  corporations,  should  dispose  of  such  securities  not 
later  than  December  31,  1911,  which  period  has  been  extended 
to  December  31,  1916.  The  effect  of  this  provision  is  further 
to  restrict  the  market  for  railroad  stocks  and  railroad  col- 
lateral bonds  secured  by  stocks.  Most  insurance  companies 
were  the  owners  of  large  blocks  of  standard  dividend-paying 
railroad  securities,  whereas  at  the  time  this  statute  was  en- 
acted the  stocks  of  other  business  corporations  had  not  reached 
a  safe  enough  basis  to  lead  the  life  insurance  companies  to 
acquire  them.  Thus,  railroad  stocks  have  been  affected  by  the 
new  insurance  law  more  unfavorably  than  those  of  other  cor- 
porations. 

The  fact  that  a  large  number  of  railroads  have  found  it 
necessary  to  reduce  dividends,  or  are  threatened  by  a  situ- 


36 

ation  imperiling  the  maintenance  of  dividends,  is   also  having 
the  effect  of  restricting  the  market  for  their  securities. 

IV.  Discrhninaiion  in  exemptions  from  taxation.  The  dis- 
crimination against  railroad  securities,  as  compared  with 
State  and  Municipal  obligations  in  exemptions  from  taxation, 
has  for  many  years  been  an  obstacle  to  the  marketing  of  rail- 
road securities  on  terms  relatively  as  favorable,  other  things 
being  equal,  as  government  obligations.  This  fact  recently 
became  prominent  when  the  new  Income  Tax  law  exempted 
nearly  all  classes  of  government  securities.  The  immediate 
effect  was  a  rise  in  the  price  of  the  exempt  securities — a  rise 
much  more  pronounced  than  warranted  by  the  ])resent  rate 
of  the  tax,  because  of  the  apjDrehension  that,  as  the  Federal 
government  is  constantly  demanding  more  revenue,  the  rate 
ma}'  be  increased. 

V.  Risk  attending  railroad  enterprises.  Added  to  the 
foregoing  causes  of  decline  in  railroad  credit  is  the  increasing 
uncertainty  of  the  financial  results  of  railroad  operations.  The 
railroad  business  suffers  exceptionally  from  periods  of  de- 
pression owing  to  the  requirement  that  its  facilities  shall 
always  be  sufficient  for  the  prompt  movement  of  the  maximum 
traffic.  Thus,  during  the  twelve  months  ended  with  June 30, 1893, 
the  traffic  made  it  necessary  for  the  railroads  to  equip  them- 
selves to  carry  on  the  average  not  less  than  83,809  passengers 
and  551,232  tons  of  freight  one  mile  per  mile  of  road.  It  was 
not  until  1898  that  the  density  of  freight  movement  again 
equalled  that  of  1893.  After  the  panic  of  1907  there  was  a  re- 
duction in  freight  business  for  the  next  two  years,  that  of  1908 
being  7.36  per  cent  and  that  of  1909  being  9.33  per  cent  less 
than  for  the  year  June  30,  1907.  By  reason  of  large  increase 
in  fixed  expenses,  especially  those  arising  from  the  unavoidably 
heavy  additions  to  capital  investment,  the  railroad  companies 
are  becoming  less  able  to  reduce  their  current  outlays  in 
times  of  business  depression. 

Senator  Cummins  also  failed  to  take  into  consideration  the 


37 

fact  that  there  remains  a  very  considerable  volume  of  railway 
indebtedness  which  is  covered  by  contracts  that  were  made 
prior  to  the  fall  in  interest  rates  that  produced  the  relatively 
low  level  which  antedated  the  present  rise.  The  rates  that  must 
be  paid  under  these  contracts  vary  from  live  per  cent  upward 
and  the  validity  of  these  pledges  is  equal  to  that  of  those  made 
at  lower  rates.  The  amounts  reported  hj  the  Interstate  Com- 
merce Commission  (see  7'eport  on  Statistics  of  Baihvays  in  1911, 
p.  JfjO)  on  June  30,  1911,  were  as  follows : — 


Funded  debt  (exclusive  of  equipment 
trust  obligations) 

Eate  of  interest 

Amount 

Percent  of  total 
outstanding 

5  per  cent  or  more  but 
less  than  6  per  cent. 

()  per  cent  or  more  but 
less  that  7   per  cent. 

7  per  cent  or  more  but 
less  than  8  per  cent 

8  per  cent  or  more 

$1,882,727,034. 

629,025,700. 

118,603,707. 
763,150. 

19.18 

6.41 

1.21 
.01 

Total 

$2,631,119,591. 

26.81 

The  existence  of  these  bonds  must  for  some  time  in  the 
future  influence  the  average  rate  of  interest  paid  by  the  rail- 
ways, and  although  there  have  been  years  during  the  last  de- 
cade during  which,  had  they  matured,  they  might  have  been  re- 
funded at  lower  rates  than  those  required  by  the  contracts, 
still  in  force,  there  is  no  longer  any  reason  for  confidence  th-it 
the  maturity  of  any  of  them,  save  those  carrying  the  very 
highest  rates,  at  least,  will  afford  opportunity  for  any  saving. 
There  is,  on  the  contrar}',  much  reason  for  believing  that,  for 
a  long  period  to  come,  the  interest  rate  will  remain  at  the 
higher  level. 


38 

Value  of  railway  stocH  paying  Jive  per  ce7if.  Senator 
Cummins  insists  {p.  1252)  that  "  under  noimal  conditions  in- 
vestors are  glad  to  put  their  money  in  railway  *  *  * 
stocks  paying  five  per  cent  dividends."  If  Senator  Cummins 
meant  by  the  foregoing  that  investors  have  recently  been  ready 
to  absorb  at  par  new  issues  of  railway  shares  on  a  five  per 
cent  basis,  he  is  quite  seriously  in  error,  and  if  he  did  not  mean 
that  they  would  purchase  such  securities  at  par  his  assertion  in 
no  way  supports  his  argument.  The  restricted  market 
for  such  portions  of  old  issues  as  have  appeared  for 
sale  during  the  last  year  is  well  known  and  even 
these  small  sales  have  not,  to  any  large  extent, 
realized  prices  on  a  five  per  cent  basis.  The  preferred 
shares  of  the  Atchison,  Topeka  &  Santa  Fe,  a  five  per  cent 
security,  have  sold  as  low  as  $97.50  per  $100.00  share  since 
January  1,  1914  ;  the  common  shares  of  the  Chicago,  Milwau- 
kee &  St.  Paul,  also  a  five  per  cent  stock,  as  low  as  $94,125 
per  $100.00  par  value,  while  those  of  the  New  York  Central  & 
Hudson  Kiver,  paying  the  same  rate,  have  varied  between 
$83.63  and  $96.63  for  $100.00  par.  The  five  per  cent  second 
preferred  shares  of  the  New  York,  Chicago  &  St.  Louis  have 
sold  at  72  per  cent  of  par ;  those  of  the  Southern  Railway 
between  74.625  per  cent  and  85.25  per  cent.  The  common 
stock  of  the  Lehigh  Valley,  which  pays  ten  per  cent  dividends 
and  on  a  five  per  cent  basis  would  sell  at  $200.00  each,  has 
sold  between  $132.25  and  $156.25  ;  those  of  the  Pennsylvania 
Railroad,  worth  $120.00  on  a  five  per  cent  basis,  at  $108.25  to 
$115.50  ;  those  of  the  Chesapeake  &  Ohio,  worth  $80  at  five 
per  cent,  at  $44.38  to  $68.00 ;  those  of  the  Baltimore  &  Ohio, 
(common  stock)  worth  $120.00  at  five  per  cent,  from  $78.00  to 
$98.38 ;  those  of  The  Delaware  and  Hudson  Company,  worth 
$180.00  at  five  per  cent,  at  $145.50  to  $159.50.  In  general  it 
may  safely  be  said  that  no  new  issue  of  railway  stock  has  for 
a  long  time  been  marketable  on  a  five  per  cent  basis — even 


39 

sales  in  the  market,  in  relatively  small  volume,  have  not  been 
i^ossible  on  that  basis. 

It  is  true  that  in  a  remote  period  there  were  railway  stocks 
in  considerable  volume  which  sold  regularly  above  par.  In 
those  days,  before  the  fall  in  the  purchasing  power  of  the 
money  by  which  scheduled  rates  are  measured,  before  the 
long  series  of  substantially  compulsory  increases  in  wages, 
before  the  great  rise  in  the  cost  of  fuel  and  other  supplies, 
before  the  enactment  of  full-crew  laws,  etc.,  there  were  actual 
equities  supporting  the  value  of  these  shares  and,  in  many 
instances,  the  railways  were  able  to  satisfy  their  capital  re- 
quirements by  disposing  of  shares  of  stock  at  prices  notably 
above  par.  In  this  way  these  companies  brought  into  their 
treasuries  actual  cash  in  excess  of  the  par  value  of  the  shares 
issued  to  procure  it.  Such  operations  are  now  out  of  the 
question.  There  is  now  scarcely  a  railway  anywhere  which 
could  secure  needed  capital  by  the  sale  of  stock  and  those 
who  paid  premiums  have,  in  most  cases,  seen  their  stock  fall 
to  par  or  below  par.  To  a  large  extent  railways  are  pro- 
hibited, by  statutes,  from  disposing  of  new  shares  at  less  than 
par  and  the  financial  markets  refuse  to  take  such  shares  at 
par.  Under  such  conditions  bond  issues  have  become  the 
only  available  means  for  raising  funds. 

Second  Conclusion. 

The  second  conclusion  stated  by  Senator  Cummins  is  that 
a  margin  of  $704,000,000  between  gross  receipts  and  necessary 
payments  for  wages ;  maintenance  of  roadbed,  structures  and 
equipment ;  other  operating  expenses  and  taxes,  would  suffice 
(leaving  intercorporate  payments  such  as  rentals,  etc.,  out  of 
the  amount)  to  permit  the  payment  of  four  per  cent  on  bonds 
and  five  per  cent  on  stock  {p.  7^52). 

In  discussing  the  foregoing  it  should  be  noted,  at  the  out- 
set, that  it  rests  upon  the  assumption  that  well-managed  rail- 


40 

way  properties  may  pay  out,  in  interest  and  dividends,  the 
entire  excess  of  their  gross  receipts  over  necessary  expenses 
and  taxes,  that  is,  the  whole  of  their  corporate  income.  Such 
an  assumption  is  unprofitable  and  illusory.  There  are  many 
contingencies,  many  non-revenue  producing  alterations  or 
improvements,  the  cost  of  which  must  be  provided  for  out  of 
income,  and  all  practical  business  experience,  not  only  that  of 
railways,  but  that  of  all  kinds  of  industrial  undertakings  sup- 
ports the  assertion  that  any  corporation  that  adopts  and  follows 
that  profligate  plan  for  any  length  of  time  might  as  well  be 
considered  as  hopelessly  insolvent  from  its  commencement. 
There  is  no  course  consistent  with  solvency  save  the  conserv- 
ative one  of  re-investing  or  retaining  for  contingencies  a  sub- 
stantial portion  of  gross  receipts  over  and  above  that  portion 
necessarily  expended  in  operation  and  to  meet  taxation. 

Moreover,  the  figures  shown  by  Senator  Cummins,  as  aver- 
age yields  demanded  by  investors,  so  far  as  they  are  accurate 
at  all,  and  the  average  yields  introduced  herein  by  the  writer, 
are  the  yields  demanded  when  this  sound  and  conservative 
policy  is  enforced  ;  not  those  speculative  yields  that  would  be 
required,  if  the  securities  could  be  sold  at  all,  from  corporations 
which  were  known  continuously  to  violate  this  most  essential 
principle  of  safe  financial  management.  It  may  be  premised, 
therefore,  that  if  $704,000,000  would  meet  legitimate  require- 
ments for  interest  and  dividends,  there  would  have  to  be  a  con- 
siderably greater  amount  than  $704,000,000  over  expenses  and 
taxes  or  it  would  be  impossible  to  pay  that  amount  to  in- 
vestors This  essential  fact  was  entirely  overlooked  or  ignored 
by  Senator  Cummins. 

Questions  of  capitalization.  Much  of  Senator  Cummins' 
argument  in  support  of  his  second  conclusion  rests  upon  his 
assumption  that  the  volume  of  railway  securities  in  the  hands 
of  investors  has  a  par  value  in  excess  of  the  actual  cost  of  the 
properties  represented.  This  is  the  frequently  refuted  and 
ever-recurrent  charge  of  "  over-capitalization,"     It  is  incon- 


41 

sistent  with  other  portions  of  Senator  Cummins'  speech,  for  it 
is  obviously  impossible  that  the  railwaj's,  as  an  whole,  should 
be  both  "  over-capitalized  "  and  "  under-capitalized."  Yet,  in 
another  portion  of  his  speech  (p.  7'256),  he  said 

"  I  shall  not  take  up  the  probable  tendency  of  the 
railway  companies  to  charge  in  their  maintenance 
accounts  many  expenditures  that  might  well  be  included 
in  their  construction  or  capital  account." 

Of  course,  if  the  railways  have  failed  to  charge  the  capital 
account  with  expenditures  properly  belonging  there,  they  are, 
to  that  extent,  under-capitalized. 

The  charge  of  "  over-capitalization "  is  also  inconsistent 
with  an  admission  made  by  Senator  Cummins  {p.  7251)  as 
follows  : 

"  I  may  pause  here  to  say  that  if  the  principle  or 
rule  laid  down  by  the  New  Jersey  Utilities  Commission, 
concerning  which  we  had  much  to  say  recently  and 
which  Senators  well  understand,  is  applied  to  the  rail- 
roads of  the  country,  the  value  of  this  property  will,  in 
my  judgment,  be  four,  five  or  six  billion  dollars  more 
than  its  present  capitalization." 

Continuing  {o7i  the  same  page)  Senator  Cummins  im- 
mediately followed  the  foregoing  with 

"  If  the  other  rule  is  applied  to  the  railway  prop- 
erty, it  is  likely  that  its  value  will  be  found  to  be  less 
than  its  present  capitalization.  It  all  depends  upon 
the  estimate  which  the  Interstate  Commerce  Commission 
shall  finally  make  with  regard  to  the  intangible  value 
of  the  railroad  property  as  to  the  conclusion  which  it 
may  reach  ;  but  if  this  intangible  value  is  added,  then 
I  have  no  doubt  whatever  that  the  railroads  will  be 
entitled  to  an  increase." 

In  other  words,  Senator  Cummins  admits  that  the  charge 
of  "  over-capitalization "  rests  wholly  upon  a  difference  of 
opinion  as  to  the  principle  involved  and  that  if  the  principle 


42 

lately  adopted  in  New  Jersey  is  sanctioned  by  the  Interstate 
Commerce  Commission  the  railways  will  be  found  to  be  very 
greatly  "under-capitalized."  The  reference  "concerning 
which  we  had  much  to  say  recently  "  is  most  significant  and 
the  facts  are  most  persuasive  that  the  United  States  Senate 
and  the  other  public  authorities  have  already  sanctioned  the 
principle  which  would  operate  so  as  to  demonstrate  that  the 
railways  are  actually  and  properly  worth  more  than  their 
present  capitalization.  The  Senate  discussion  thus  referred 
to  was  that  which  preceded  the  confirmation,  as  a  member  of 
the  Interstate  Commerce  Commission,  of  Professor  Winthrop 
M.  Daniels  of  New  Jersey,  who  was  at  the  time  of  his  nomina- 
tion and  appointment  a  member  of  the  Public  Utilities  Com- 
mission, of  his  State,  having  been  appointed  by  President 
(then  Governor)  Wilson.  Professor  Daniels  was  largely 
responsible  for  the  adoption  of  the  principle  in  question  and 
was  chosen  for  membership  in  the  Interstate  Commerce  Com- 
mission by  President  Wilson  long  after  his  course  in  this  re- 
spect had  become  well  known  and  the  principle  thoroughly 
understood.  After  prolonged  discussion  of  both  in  the  Senate, 
he  was  confirmed  by  a  very  large  majority.  Hence  it  may  be 
concluded  that  President  Wilson  and  the  Senate  fully  approve 
of  the  principle  adopted  in  New  Jersey  and  have  purposely 
placed  an  advocate  of  that  principle  where  he  can  do  most  to 
extend  its  application.  Moreover,  there  is  no  evidence  that 
any  member  of  the  Interstate  Commerce  Commission  has  an}' 
other  view,  on  this  question,  than  that  held  by  Professor 
Daniels.  It  is  submitted  that  the  principle  wisely  adopted  in 
New  Jersey  is  correct  and  will  prevail. 

Long  before  the  nomination  of  Professor  Daniels,  and  con- 
sequently before  the  controversy  alluded  to  by  Senator  Cum- 
mins, the  latter  declared  his  belief  that  "  the  physical  value  of 
the  railroads  of  the  United  States  exceeds  largely  the  capital- 
ization." His  language  was  unequivocal  and  should  be  quoted. 
Speaking  before  the  Traffic  Club  of  Chicago  some  four  years 


43 

ago,  in  an  address  subsequently  printed  in  "  Freight,  The  Ship- 
pers' Forum,"  for  March,  1910,  Senator  Cummins  said  in 
part  — 

"  I  have  some  friends  who  believe  we  ought  to  have 
a  physical  valuation  of  the  railways  of  the  United 
States.  I  assume,  to  furnish  a  basis  for  ascertaining 
the  capital  on  which  a  reward  should  be  permitted. 
Personally,  I  do  not  concur  in  their  views,  for  I  know 
just  enough  about  the  railway  properties  of  the  United 
States  to  believe  that  while  the  railway  companies  are 
cajDitalized  for  something  like  sixteen  billion  dollars, 
possibly  fifteen  billion  dollars,  a  23hysical  valuation 
might  result  in  about  twenty  billion  dollars  *  *  * 
I  have  just  said  that  I  believed  the  physical  value 
of  the  railroads  of  the  United  States  exceeds  largely 
the  capitalization     *     *     *." 

In  the  recent  Anthracite  case  before  the  Interstate  Com- 
merce Commission  {Docket  No.  IfBlIf.,  noio  pending)  the  carriers 
concerned,  that  is,  all  the  railways  serving  the  anthracite 
region,  introduced  testimony  showing  that  from  their  crea- 
tion they  had,  in  the  aggregate,  sold  shares  having  a  par  value 
of  $838,003,907  for  $890,394,666  in  cash,  thus  receiving  a 
premium  (less  discount)  of  $62,390,759  and  bonds  with  a  par 
value  of  $1,037,419,765  for  $1,004,809,442  in  cash,  a  discount 
of  $32,610,323.  Thus,  these  railways  combined  have  received 
from  the  sale  of  shares  and  bonds,  $19,780,436  in  cash  and 
property  more  than  their  aggregate  par  value.  Further,  in 
connection  with  the  Anthracite  case,  the  chief  accounting 
officers  of  the  anthracite  carriers  prepared  an  analysis  of  the 
property  investment  and  income  accounts  of  those  companies. 
There  were  deducted  from  the  cost  of  property  any  discounts 
on  securities  which  had  formerly  been  added  thereto,  and 
there  were  transferred  from  operating  income  or  profit  and  loss 
the  items  formerly  charged  thereto,  which  properly  belonged 
in  the  property  account. 


44 

Tliis  investigation  disclosed  the  fact  that  the  actual  cash 
cost  aggregated  not  less  than  $1,701,778,548  as  compared  with 
a  book  cost  of  $1,559,680,747  *  for  the  Delaware,  Lackawanna 
&  Western,  Central  E.  E.  of  New  Jersey,  Lehigh  Valley, 
New  York,  Susquehanna  &  Western,  Pennsylvauia  Eailroad, 
New  York,  Ontario  &  Western,  Delaware  and  Hudson,  and 
Philadelphia  &  Eeadiug. 

A  joint  report  of  the  Board  of  Eailroad  Commissioners, 
the  Tax  Commissioners  and  the  Bank  Commissioners  of 
Massachusetts  fixed  the  value  of  the  New  York,  New  Haven 
&  Hartford  as  $179,532,881,  which  is  to  be  compared  with 
$168,349,730,  the  book  cost  of  the  property,  as  reported  by  the 
Interstate  Commerce  Commission. 

An  engineer's  valuation  of  the  Lehigh  Valley,  made  under 
the  direction  of  Mr.  William  J.  Wilgus,  an  engineer  who  has 
had  very  extensive  experience  in  the  valuation  of  properties 
of  similar  character,  fixed  the  cost  of  reproducing  that  prop- 
erty, as  of  June  1,  1914,  as  $324,478,300.  Mr.  Wilgus  placed 
the  reproduction  cost  of  roadbed,  structures  and  equipment, 
exclusive  of  all  allowances  for  coutiugencies  and  "  overhead  " 
expenses  as  $256,072,863,  of  which  $174,645,746  was  for 
roadbed  and  structures  and  $74,427,117  for  equipment. 
On  substantially  the  same  date,  that  is  on  June  30,  1914,  the 
entire  par  of  all  Lehigh  Valley  bonds  and  shares  was  $150,254,- 
869.18  of  which  $60,608,000  was  stock  and  $89,646,869.18  repre- 
sents bonds  of  various  classes,  including  those  secured  by  mort- 
gages, collateral  trust  agreements,  equipment  trust  agreements 
and  miscellaneous.  Mr.  Charles  Hansel,  an  eminent  consult- 
ing engineer  who  made  a  similar  study  of  the  Philadelphia  & 
Eeadiug  Eailway,  gave  the  cost  of  reproducing  its  roadbed  and 
structures,  without  equipment,  as  of  June  30,  1913,  as 


*  The  comparison  shown  is  for  the  year  ended  June  30,  1911,  the  latest 
for  which  the  book  costs,  reported  to  the  Interstate  Commerce  Commission 
by  roads  comprised  within  the  railroad  systems  named,  are  available. 


45 

404,222,  the  figure  including  an  allowance  for  contingencies 
or  "  overhead  "  expenses.  One  year  later,  on  June  30,  1914, 
the  Philadelphia  &  Reading  Railway  Company  was  repre- 
sented by  securities  having  a  total  par  value  of  $01,867,445.94, 
including  $42,481,700  in  shares  and  $49,385,745.94  in  bonds. 
Mr.  Hansel  also  valued  the  physical  property  of  the  Central 
Railroad  Company  of  New  Jersey  in  the  single  state  of  New 
Jersey,  at  $82,122,886.  This  value  represents  part  only  of  the 
railway  property  of  the  Central  Railroad  of  New  Jersey,  but  it 
exceeds  the  par  value  of  its  securities  on  June  30,  1914,  which 
was  $73,707,800,  including  $27,436,800  in  stock  and  $46,271,000 
in  mortgage  bonds  and  equipment  trust  obligations. 

Official  statistics  already  supply  a  plan  and  complete  refuta- 
tion of  the  charge  of  "  over-capitalization."  The  following  is 
a  consolidated  balance  sheet  of  all  the  railroads  of  the  United 
States,  made  up  from  the  reports  of  the  Interstate  Commerce 
Commission,  and  from  the  reports  of  railways  to  that  body,  for 
the  years  1890  and  1911 : 


46 


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47 


The  following  statement  shows  the  length  in  miles  of  main 
and  other  tracks  : 


Per  Cent 

Tracks 

1911 

1890 

Increase 

of 
increase 

Single  track 

223,843.29 

142,016.80 

81,826.49 

57.62 

Second  track 

23,146.10 

8,437.65 

15,008.45 

177.87 

Third   track 

2,414.16 

760.88 

1,653.28 

217.28 

Fourth  track 

1,747.10 

561.81 

1,185.29 

210.98 

Total     all      main 

tracks   

251,450.65 

151,777.14 

99,673.51 

65.67 

Yard  and  sidings. 

88,082.76 

30,611.79 

57,470.97 

187.74 

Total    mileage 

operated    (all 

tracks)  

339,533.41 

182,388.93 

157,144.48 

86.16 

The  Commission,  in  its  annual  reports,  shows  the  securities 
issued  per  mile  of  road  (first  main  track)  but  does  not  show 
the  results  per  mile  of  main  track  (i.  e.,  first  main  track,  sec- 
ond, third,  fourth  and  other  main  tracks),  nor  does  it  show 
the  results  per  mile  of  all  tracks,  (i.  e.,  main  tracks,  yard  tracks, 
passing  tracks  and  industrial  tracks).  From  the  consolidated 
balance  sheet  it  will  be  noted  that  the  securities  per  mile  of 
road  have  increased  41.96  per  cent,  while  per  mile  of  main 
track  they  have  increased  only  35.06  per  cent ;  per  mile  of  all 
tracks  they  have  increased  but  20.19  per  cent.  However,  de- 
ducting the  investments  in  stocks  and  bonds  of  other  corpora- 
tions and  showing  the  results  only  for  securities  issued  on 
account  of  the  cost  of  road  and  equipment,  leaves  an  average 
per  mile  of  road  in  1911  of  $66,360.,  an  increase  of  19.30  per 
cent ;  an  average  per  mile  of  all  main  tracks  of  $59,074.,  an 
increase  of  13.50  per  cent,  and  an  average  per  mile  of  all  tracks 
of  $43,749.,  or  an  increase  of  1.01  per  cent. 

From  1888  to  1909,  inclusive,  the  reports  of  the  Interstate 
Commerce  Commission  stated  the  cost  of  road  and  the  cost  of 


48 

equipment  separately,  but  since  1909  these  items  Lave  been 
consolidated.  Comparing  these  separate  items  for  the  period 
for  which  they  are  respectively  available  shows  the  following  : 

Average  Cost  of  Koad  and  Equipment  Per  Mile. 


Per  mile 
of  road. 

Per  mile 
of  main  track. 

Per  mile 
of  all  tracks. 

1909 

1890 

1909 

1890 

1909 

1890 

Cost  of  road 

Cost  of  equipment...... 

$55,849 
5,542 

$51,400 
2,960 

$50,276 
4,989 

$48,109 
2,770 

$37,673 
3,783 

$40,033 
2.305 

Total 

$61,391 

$54,360 

$55,265 

$50,879 

$41,456 

$42,338 

The  foregoiug  shows  that  a  very  large  proportion  of  the 
increases  from  1890  to  1909  represent  the  higher  cost  of  equip- 
ment per  mile  that  has  resulted  from  the  expansion  of  traffic, 
from  the  higher  cost  of  the  labor  and  materials  entering  into 
equipment,  and  from  meeting  the  public  demand  for  equipment 
of  improved  quality  and  efficiency.  The  figures  show  that 
per  mile  of  road,  cost  of  road  increased  8.66  per  cent  from 
1890  to  1909,  while  cost  of  equipment  increased  87.23  per 
cent.  Per  mile  of  main  track  the  increase  in  cost  of  road  was 
at  the  rate  of  4.50  per  cent,  and  in  equipment  at  the  rate  of 
80.11  per  cent.  Compared  with  all  tracks,  cost  of  road  actu- 
ally decreased  5.90  per  cent  during  the  nineteen  years,  while 
cost  of  equipment  increased  64.12  per  cent.  It  is  known  that 
the  same  tendencies  are  in  continued  operation,  and  it  is  rea- 
sonable to  conclude  that  if  the  separate  costs  of  road  and 
equipment  were  available  for  1911  they  would  show  a  still 
greater  relative  increase  in  the  cost  of  the  latter. 

Moreover,  the  meagre  increases  in  the  volume  of  securities, 
as  compared  with  trackage,  are  surprising  when  consideration 
is  given  to  the  large  expenditures  since  1890  for  reduction  of 
grades,  revision  of  line,  interlocking  towers,  automatic  block 


49 

sif^nals,  increased  weight  of  rails,  increased  capacity  of  bridges, 
improved  stations  and  terminals,  elevation  of  tracks  and  the 
many  other  items  classified  as  additions  and  betterments 
which  have  increased  the  aggregate  cost  of  material  in  place. 
A  very  considerable  portion  of  those  improvements  has  been 
charged  to  the  income  account  or  to  the  profit  aud  loss  ac- 
count, and  is  not  included  in  the  book  cost  of  the  property, 
and  no  securities  have  been  issued  on  account  thereof.  The 
charges  to  the  capital  account  during  the  past  twenty  years,  at 
least,  can  be  said  to  have  been  most  conservative,  and  for  the 
last  six  years  all  these  charges  have  been  controlled  by  the 
uniform  accounting  system  prescribed  by  the  Interstate  Com- 
merce Commission  and  checked  by  inspectors  exercising  the 
authority  of  the  Federal  government. 

The  following  table  shows  the  book  cost  of  the  railways  in 
comparison  with  the  traffic  handled,  and  indicates  the  increased 
efficiency  of  railway  facilities  and  methods  and  the  smaller 
average  volume  of  capital  per  unit  of  service. 

Capitalization  and  Efficiency. 


Item 


Cost  of  road  and  equip- 
ment  pins  working 

assets 


Number  of  passengers 
carried  one  mile 

Number  of  tons  of 
freight  carried  one 
mile 


1911 


$17,159,801,4^2 


1890 


5,113,975,272 


33,201,694,699!  11,847,785,617 


253,783,701,8391  76,207,047,298 


Increase 
per    cent 


111.48 


180.24 


233.02 


That  the  railways,   with   an  increase  of   111  per  cent   in 
capital  have  been  able  to  handle  180  per  cent  more  passenger 


50 

tiaffic"and  233  per  cent  more  freight  traflBc  clearly  indicates 
notable  eflScieucj.  This  result  has  been  obtained,  principally, 
by  three  means : 

First  :  A  reduction  in  the  grades  and  improvement  of 
structures,  the  cost  of  this  improvement  necessarily  adding  to 
the  average  cost  per  mile  of  track. 

Second  :  Increased  investment  in  equipment  as  shown 
below. 

Equipment. 


Item 

1911 

1890 

Increase 

Number 

Per  cent 

Number  of  locomotives 
Number    of   passenger 

cars 

Number      of      revenue 

freight  cars 

61,327 

49,818 

2,195,511 

30,140 

26,820 

918,491 

31,187 

22,998 

1,277,020 

103.47 

85.75 

139.03 

As  the  miles  of  main  track  increased  only  65.67  per  cent  it 
will  be  seen  that,  necessarily,  the  investment  per  mile  of  track 
on  account  of  locomotives,  passenger  cars  and  freight  cars  has 
very  materially  increased. 

The  roadbed  has  been  strengthened  by  use  of  heavier  rails, 
and  by  the  substitution  of  iron  and  steel  for  wooden 
bridges,  etc.,  and  terminal  facilities  have  been  enlarged  and 
improved. 

Third  :  The  aggregate  capacity  of  all  equipment  has  in- 
creased much  more  than  the  number  of  locomotives  and  cars. 
The  reports  only  show  this  information  for  the  years  1902  to 
1911,  both  inclusive.  The  average  tractive  power  of  locomo- 
tives in  1911  was  27,949  pounds,  as  compared  with  20,485 
pounds  in  1902,  being  an  increase  of  7,464  pounds,  or  36.44  per 


51 

cent  per  locomotive.  The  average  capacity  of  freight  cars  iu 
1911  was  thirtj-seven  tons  as  compared  with  twenty-eight  tons 
in  1902,  an  increase  of  nine  tons,  or  32,14  per  cent.  Undoubt- 
edly, the  average  capacity  of  freight  cars  iu  1908  was  not  less 
than  sixty-five  per  cent  above  the  average  capacity  of  1890. 

The  only  data  for  the  period  prior  to  1902  appear  to  be 
that  included  iu  a  report  by  Mr.  L.  F.  Loree,  as  Reporter  (for 
United  States)  to  the  International  Bail  way  Congress  held  in 
Paris  in  1900,  who  communicated  with  all  roads  in  the  United 
States  then  operating  five  hundred  miles  of  line,  or  over,  rela- 
tive to  the  capacity  of  cars  actually  in  service.  The  results 
are  shown  in  the  following  statement : 


52 


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53 

As  a  result  of  these  improvements  in  roadway  and  equip- 
ment, the  average  number  of  tons  of  freight  handled  per  freight 
train  in  1911  was  383.10  tons  as  compared  with  296.47  tons  in 
1902,  an  increase  of  86.63  tons,  or  29.22  per  cent.  The  average 
tons  per  freight  train  in  1911,  383.10  tons,  compares  with 
175.12  in  1890,  an  increase  of   207.98  tons,  or  118.76  per  cent. 

These  figures  prove  that  there  has  been  no  general  practice 
on  the  part  of  the  roads  of  the  country,  from  1890  to  date,  of 
issuing  capital  securities,  without  securing  full  value  therefor 
in  additions  to  the  property  used  in  the  public  service. 

Union.  Pacific.  As  an  illustration  of  alleged  over-capitali- 
zation Senator  Cummins  refers  (p.  7251)  to  an  episode  in  the 
history  of  the  Union  Pacific  Railroad,  as  follows  : 

"  We  have  but  to  remember  *  *  *  the  action  of 
the  Union  Pacific  in  borrowing  $100,000,000  for  the 
purpose  of  acquiring  an  entire  railroad,  or  an  interest  in 
an  entire  railroad,  and  when  it  was  compelled  to  forego 
that  enterprise,  instead  of  using  the  money  that  it  bor- 
rowed for  the  purpose  of  discharging  the  obligation 
thereby  created,  it  distributes  the  stock  which  had  been 
acquired  in  the  Baltimore  &  Ohio  Railroad  and  dis- 
tributes the  cash  which  remained  or  had  been  covered 
into  the  treasury  on  account  of  the  loan  as  a  stock  and 
cash  dividend  among  the  stockholders — my  friend  from 
Colorado  says  '  common  stockholders  '  and  I  have  no 
doubt  that  is  so — a  chapter  in  railroad  financing  humili- 
ating to  the  people  of  the  United  States." 

The  Union  Pacific  is  entitled  to  have  the  distribution  of 
Baltimore  and  Ohio  shares  con.sidered  in  its  relation  to  other 
facts  of  its  corporate  history,  not  as  a  solitary  and  isolated 
transaction.  Whatever  public  importance  this  episode  may 
have  it  shares  with  every  other  episode  that  has  affected  in 
one  way  or  another,  the  balance  between  assets  (property)  and 
liabilities  (securities  and  current  debts).  Without  considering 
all  related  episodes  and  striking  this  general  balance  it  is  im- 


64 

possible  to  measure  the  true  siguificance  of  any  single  trans- 
action. And  furthermore,  it  is  extremely  significant  that 
this  particular  transaction  has  been  considered  by  four  courts, 
including  the  Court  of  Appeals  of  the  State  of  New  York,  and 
its  validity  unanimously  sustained  in  each  instance. 

All  tlie  salient  features  of  this  transaction  were  satisfactorily 
stated  in  a  letter  written  by  Mr.  R.  S.  Lovett,  Chairman  of  tbe 
Executive  Committee  of  the  Union  Pacific  to  Senator  Thomas 
of  Colorado  on  April  18,  1914,  and  printed  in  the  daily 
Congressional  Record  of  April  22,  1914,  on  pages  7602-3. 
The  writer  holds  no  brief  for  the  Union  Pacific  and  is  not 
able  to  speak  with  full  knowledge  of  the  events,  but  it  is  well 
to  recapitulate  the  public  record  of  what  happened.  Some 
years  ago  the  Union  Pacific,  finding  that  a  large,  although  not 
a  majority  interest  in  the  Southern  Pacific  Company, — which 
was  and  is  the  lessee  of  the  Central  Pacific,  over  which  the 
Union  Pacific  has  access  to  the  Pacific  Coast, — was  in  the 
market  at  what  was  considered  a  satisfactory  price,  determined 
to  purchase  the  shares  offered.  To  finance  the  purchase  the 
Union  Pacific  issued  its  notes  and  later  redeemed  these  notes 
out  of  the  proceeds  of  an  issue  of  bonds  which  were  made,  by 
their  terms,  convertible,  dollar  for  dollar,  into  common  stock. 
Although  this  issue  aggregated  $100,000,000  in  par  value,  only 
forty  per  cent  of  the  total  was  devoted  to  the  purchase  of  an 
interest  in  the  Southern  Pacific  Company. 

The  conversion  privilege,  at  the  time  these  bonds  were 
issued,  gave  them  some  speculative  value  and  facilitated  their 
sale  at  a  reasonable  price,  even  though  the  stock  then 
sold  much  below  the  conversion  price,  but  it  was  only 
a  short  time  before  it  expired  that  the  earnings  of  the 
corporation,  largely  derived  from  its  fortunate  investments, 
established  the  market  value  of  the  shares  at  figures  which 
made  it  profitable  to  make  the  exchange  and  the  conversion 
was  completely  accomplished.  Later,  in  1907,  the  Union 
Pacific  disposed  of  $73,762,000  in   face  value  of   convertible 


55 

bonds,  containing  a  covenant  to  accept  them  at  par  at  any 
time  prior  to  July  1,  1917,  in  exchange  for  common  stock  to 
be  valued  in  the  exchange  at  $175  per  $100  of  par  value. 
These  bonds  were  sold  to  shareholders  at  ninety  per  cent 
of  their  face  value  and  the  conversion  into  stock  subsequently 
effected  left  a  balance  of  actual  cash  receipts  that  was  more  than 
$25,000,000.  or  about  sixty  per  cent,  in  excess  of  the  par 
value  of  the  securities  by  which  the  cash  was  secured.  That 
this  conversion  was  effected  tends  strongly  to  discredit  the 
notion  that  there  is  any  connection  between  par  value  of  se- 
curities and  railway  charges  or  that  the  former  can  have  any 
influence,  independent  of  the  real  valne  of  the  property,  in  de- 
termining the  amount  available  for  distribution  as  interest  and 
dividends. 

In  transactions  connected  with  the  Northern  Securities 
Company,  the  shares  of  Northern  Pacific  and  Great  Northern 
received  on  its  enforced  dissolution  and  the  reinvestment  of 
the  proceeds  of  the  marketing  of  those  shares,  the  Union 
Pacific  within  a  few  years  obtained  a  profit  of  $58,855,677, 
a  part  of  which  came  to  be  represented  in  its  treasury  by 
common  shares  of  the  Baltimore  k  Ohio,  having  a  par  value 
of  $32,334,200  and  preferred  shares  having  a  par  value  of 
$7,206,400.  Later,  when  required  by  a  decision  of  the 
Supreme  Court  of  the  United  States,  which  thereby  over- 
ruled the  Circuit  Court,  to  dispose  of  its  holdings  of  Southern 
Pacific,  the  Union  Pacific  effected  the  necessary  sale  at  a  profit 
of  more  than  $16,000,000  taking  into  its  treasury  as  a  part  of 
the  sale  price  $21,273,600  in  par  value  of  the  common  stock  of 
the  Baltimore  &  Ohio  and  an  equal  par  value  of  the  preferred 
stock.  This  resum^  shows  that  wholly  outside  of  its  opera- 
tions as  a  common  carrier  the  Union  Pacific  was,  for  a  decade 
or  more,  engaged  in  a  considerable  series  of  highly  profitable 
transactions.  In  consequence  of  these  transactions,  including 
some  not  enumerated  herein,  the  Uunion  Pacific   found  itself 


56 

with  a  surplus  in  its  profit  and  loss  account  of  $151,153,386. 
This  represented  profits  which  the  owners  of  the  common 
shares  were  entitled  to  receive,  either  in  cash  or  in  any  form 
which  seemed  to  them  desirable.  They  might  have  insisted 
upon  the  sale  of  the  Baltimore  &  Ohio  shares  and  the  distribu- 
tion of  the  proceeds  as  dividends  ;  they  might  themselves 
have  purchased  the  shares  and  had  the  purchase  price  returned 
to  them  in  dividends,  or  they  might  have  combined  the  two 
transactions  in  one,  taking  their  dividends  in  the  form  of 
Baltimore  &  Ohio  certificates  of  stock.  There  is  cer- 
tainly no  public  significance  in  the  fact  that  they  de- 
cided upon  the  last-named  method.  The  whole  series  of 
transactions  left  a  satisfactory  equilibrium  between  the  assets 
of  the  Union  Pacific  and  the  par  value  of  its  outstanding  secur- 
ities and  other  liabilities,  and  there  is  no  pretense  that,  on  the 
whole,  the  property  is  not  worth  more  than  the  par  value  of  the 
securities  of  all  kinds  by  which  it  is  represented.  Moreover, 
if  the  distribution  of  Baltimore  and  Ohio  shares  could  properly 
be  considered  as  related  solely  to  the  Southern  Pacific  purchase, 
there  would  be  no  solid  basis  for  the  contention  that  the  pro- 
ceeds of  the  enforced  sale  of  Southern  Pacific  shares  should  be 
used  to  liquidate  the  shares  actually  issued  on  account  of  the 
original  purchase.  Such  a  course  would  have  proved  imprac- 
ticable of  execution  for  the  reason,  among  others,  that  these 
shares  had  come  to  be  inextricably  commingled  with  the  other 
common  shares  and  were  absolutely  indistinguishable.  Fur- 
thermore, the  Union  Pacific  had  no  provision  for  calling  any  of 
its  shares  and  the  only  possible  means  to  reduce  their  aggre- 
gate was  to  go  into  the  open  market  and  purchase  them — a 
cour.se  which  would  have  led  naturally  and  inevitably  to  a  rise 
in  price  and  would,  therefore,  have  proved  disadvantageous 
and  unjust  to  other  shareholders.  To  have  reduced  the  funded 
indebtedness  of  the  corporation  would  have  been  equally  un- 
desirable.    The   company  had  the   contractural    right  to  call 


57 

these  bonds  at  105,  but  to  have  done  so  would  have  been  to 
pay  a  premium  at  the  expense  of  the  stockholders,  and  uujust 
to  them.  To  have  sought  to  purchase  such  a  large  quantity  of 
bonds  in  the  open  market  would  have  enhanced  their  price, 
not  only  by  creating  an  artificial  demand  which  the  holders 
would  have  taken  advantage  of  to  exact  unduly  high  prices, 
but,  also,  by  diminishing  the  ratio  of  the  bonds  to  the  property 
pledged  as  security  therefor,  thus  adding  to  the  intrinsic  value 
of  the  bonds  which  would  have  been  outstanding.  In  this  sit- 
uation the  management  of  the  corporation  saw  no  practical  dif- 
erence,  so  far  as  the  public  interest  is  concerned,  between 
liquidating  all  the  value  of  some  of  the  shares  (whicb  it  would 
have  been,  as  has  been  shown,  impracticable  to  accomplish  on 
any  fair  basis)  or  liquidating  part  of  the  value  of  all  of  the 
shares,  which  was  readily  eflfected  substantially  in  the  manner 
criticised  by  Senator  Cummins  and,  at  the  same  time,  reduc- 
ing the  dividend  rate  from  ten  to  eight  per  cent.  If  this 
was  "  humiliating  to  the  people  of  the  United  States "  or 
an  "  indefensible  proceeding "  it  is  submitted  that  the 
considerations  which  justify  these  characterizations  require 
proof  and  argument  that  is  stronger  than  mere  invective. 
Still  looking  at  the  proceeding  in  this  narrow  light,  if  the 
Union  Pacific  management  had  actually  disposed  of  an  asset 
while  retaining  a  liability  created  to  obtain  the  former  (whicli 
they  did  not  do,  for  they  liquidated  a  portion  of  the  value  of 
each  share  and  at  the  same  time,  correspondingly  reduced  the 
dividend  rate)  they  would  undoubtedly  be  even  more  surprised 
than  gratified  to  be  shown  a  method  by  which  they  could  make 
the  liability  as  effective  in  earning  power  as  the  asset  had  been. 
Yet  the  whole  attack  upon  this  transaction  rests  upon  the 
incorrect  assumption  that  a  liability  was  continued  after  the 
corresponding  asset  had  disappeared,  and  the  unsupported  and 
unwarranted  belief  that  a  liability  has,  in  some  indefinable  way, 
an  earning  power.     Senator  Cummins  is  too  well  grounded  in 


58 

the  fundamental  principles  of  transportation  economics  and 
too  clear-beaded  to  entertain  any  such  doctrinaire  belief. 
That  par  value  of  capital  securities  has  nothing  to  do  with 
rates  was  categorically  insisted  in  a  prepared  address  which 
he  delivered  before  the  TraflBc  Club  of  Chicago  during  1910 
(See  "  Freight :  The  Shippers'  Forum,"  for  March,  1910,  pp. 
72,  74).  Using  the  term  "  capitalization  "  as  synonymous 
with  aggregate  par  values  of  such  securities,  he  said  : 

"  I  had  it  in  mind   to  say  a  word  about  one  phase 
that  does  not  directly  concern  rates :  capitalization." 

Third  Conclusion  : 

Senator  Cummins'  third  conclusion  is  that  the  net  receipts 
of  the  railways  of  the  United  States,  that  is  the  excess  of  their 
gross  receipts  over  the  amounts  expended  for  wages,  mainten- 
ance and  other  expenses  of  operation,  and  for  taxes,  have  so 
increased  since  1890  that  the  increase,  of  itself,  is  proof  that 
they  are  now  earning  as  much  as  they  ought  to  earn  {pp.  7252 
et  seq.). 

The  argument  submitted  in  support  of  the  foregoing  con- 
clusion rests,  first  of  all,  upon  the  false  premise  that  the  pros- 
perity of  a  business  undertakiug  can  be  measured  by  the  net 
results  of  the  enterprise,  before  the  deduction  of  the  necessary 
payments  for  the  use  of  capital.  There  are  three  reasons  why 
net  railway  receipts  ought  to  have  been  much  greater  in  1913 
than  in  1890  and  all  of  these  seem  to  have  been  overlooked  by 
Senator  Cummins.     These  are — 

A.  Between  1890  aud  1913  the  railway  industry  was  de- 
prived of  the  formerly  existing  possibility  of  speculative  re- 
turns which  warranted  adventurously  disposed  investors  in 
foregoing  immediate  returns  in  exchange  for  the  possibility  of 
larger  returns  in  the  future.  As  the  public  has  destroyed 
these   speculative   possibilities  it   is  desirable  and  necessary 


59 

that  the  smaller  returns   still  permitted,    in   theory   at  least, 
should  be  immediate,  stable  and  regular. 

B.  The  substitution  of  mechanical  for  muscular  processes 
by  which  labor  expenses  (operating  expenses)  are  transmuted 
into  smaller  capital  expenses.  This  process  is  characteristic 
of  every  advance  in  the  productive  arts.  If  pig-iron  is  moved 
on  the  backs  of  human  laborers  there  is  no  capital  expense, 
but  a  large  labor  expense  ;  give  the  laborers  wheelbarrows 
and  a  planked  strip  to  run  them  on  and  there  is  a 
reduced  operating  expense  consisting  of  wages,  the 
cost  of  insurance  and  maintenance  of  the  wheelbarrows  and 
the  runway  and  a  capital  expense  consisting  of  the 
interest  on  the  cost  of  the  wheelbarrows  and  the  planked  strip  ; 
substitute  a  mechanical  carrier  with  mechanical  loaders  and 
unloaders  and  there  is  almost  no  labor  expense  but  a  relatively 
larger  capital  expense.  In  order  to  justify  the  upward  develop- 
ment involved  in  each  of  these  changes,  the  aggregate  expense 
for  both  labor,  other  operations  and  capital  must,  at  each  snc- 
cessive  step,  be  less  than  at  the  next  previous  step.  When 
this  is  true  every  step  is  in  the  direction  of  the  general  wel- 
fare. But  to  take  any  of  these  steps,  capital  must  be  forth- 
coming and  it  cannot  be  obtained  in  adequate  volume  unless  it 
is  recognized  that  capital  is  entitled  to  its  proper  share  in  the 
savings  in  labor  cost  that  are  obtained  by  its  use. 

C.  The  vast  increase  and  almost  immeasurable  improve- 
ment in  the  railway  facilities  of  1913  over  those  of  1890.  It 
might  as  well  be  argued  that  the  real  estate  owner,  who  be- 
tween 1890  and  1913  had  torn  down  a  two-stor}'  building  and 
substituted  a  skyscraper,  ought  to  be  satisfied  by  the  same  net 
receipts  over  expenses  from  the  latter  as  from  the  former,  as 
that  the  net  revenues  of  1890  are  any  standard  by  which  to  test 
the  adequacy  of  the  net  revenues  of  1913. 

The  following  shows  the  increased  cost  of  railway  property 
as  reported  by  the  Interstate   Commerce   Commission  (road- 


60 

bed,  structures  and  equipment)  during  the  period  covered  by 
Senator  Cummins'  comparisons. 


Year 

Cost 

Amount 

Increase  per  cent 

1890       

$7,455,387,381 
8,197,523,165 
8,564,394,830 
8,937,545,760 
9,073,470,532 

1891     __ 

1892         ,   

1893       ^ 

1894.-.- --. 

Average,  five  years 

$8,445,666,333 

13.28 

1895 

$9,203,490,619 
9,500,327,733 
9,709,329,228 
9,760,581,424 
9,961,840,805 

1896 

1897_... 

1898  __ 

1899 - 

Average,  five  years 

$9,627,113,962 

29.13 

Average,  ten   years 

$9,036,390,147 

21.21 

1900 - 

$10,263,313,400 
10,405,095,085 
10,658,321,376 
10,973,504,903 
11,511,537,131 

1901 

1902 ,__- 

1903.. 

1904 

Average,  five  years 

$10,762,354,379 

44.36 

Average,  ten  years . 

$10,194,734,170 

36.74 

1905 

$11,951,348,949 
12,420,287,938 
13,030,344,328 

1906 

1907 

- 

61 


Year 

Cost 

Amount 

Increase,  per  cent 

1908 

13,213,766,540  ^ 
13,509,183,515  ' 

1909 ._ 

Average,  five  years 

$12,824,986,254  i 

72.02  1 

Average,  ten   years 

$11,793,670,316  ^ 

58.19  1 

1910 

$14,387,816,079  ^ 
15,562,851,659 
15,763,599,781  ' 

1911 

1912 _ 

1913 

^  Switcliing  and  terminal  roads  not  included. 

Aggregate  gross  7'eceipts,  operating  expenses  (including 
taxes)  and  net  revenues.  These  data  are  contained  iu  two 
tables  found  on  page  7253  of  Senator  Cummins'  address,  to- 
gether with  percentage  purporting  to  show  the  rates  of  in- 
crease in  net  revenues  as  compared  with  the  year  1890.  It 
should  be  understood  that  these  data  apply  only  to  com- 
panies having  gross  receipts  of  $1,000,000  or  more  per 
annum,  including  switching  and  terminal  companies.  A 
foot-note  to  the  first  table  states  the  fact  that  the  figures  for 
the  years  subsequent  to  1907  "  are  not  entirely  comparable  to 
previous  years  "  owing  to  changes  in  the  accounting  system 
prescribed  by  the  Interstate  Commerce  Commission.  Among 
the  changes  which  have  had  the  efiect  of  destroying  the  com- 
parability of  these  statistics  is  the  exclusion  from  operating 
expenses,  beginning  with  July  1,  1907,  of  such  expenses  due 
to  outside  operations,  hire  of  equipment,  rentals  of  joint 
facilities  and  miscellaneous  rents.  Correcting  Senator 
Cummins'  figures  as  far  as  the  data  supplied  by  the  Inter- 
state Commerce  Commission  permit,  gives  the  following  : — 


62 


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63 


Average  gross  receipts,  operating  expenses  (not  including 
iaxef^)  and  net  revenues  per  train  mile.  The  data  on  these 
points  used  bj  Senator  Ciimmins  appear  on  pages  7253- 
7254.  It  must  be  obvious  that  averages  resting  upon  such  di- 
vergent units  as  passenger  train  miles  and  freight  train  miles, 
and  coveriug  a  period  during  which  there  have  been  chauges 
in  the  relative  volume  of  passenger  and  freight  traffic  and  in 
the  methods  of  moving  both,  cannot  furnish  a  reliable  basis 
for  valuable  conclusions.  At  the  beginning  of  the  period  used 
by  Senator  Cummins,  that  is  in  1890,  the  ratio  of  passenger 
movement  (number  of  passengers  carried  one  mile)  to  freight 
movement  (number  of  tons  of  freight  carried  one  mile)  was  as 
100  to  643  ;  while  in  1911,  the  latest  year  for  which  the  data 
are  available  in  the  reports  of  the  Interstate  Commerce  Com- 
mission, this  ratio  had  fallen  to  100  in  764.  It  would  be  as- 
sumed that  the  expense  of  running  a  freight  train  one  mile 
must  be  materially  greater  than  the  expense  of  moving  a  pas- 
senger train  the  same  distance,  and  the  report  on  Statistics  of 
Baihvays  in  1890,  published  by  the  Interstate  Commerce  Com- 
mission, shows  that  during  that  year  the  average  cost  per 
freight  train  mile  was  $1.06  and  that  of  running  a  passenger 
train  one  mile  was  $0.81,  while  the  average  for  all  trains  was 
$0.96.  The  computations  indicated  by  the  following  table 
show  that  if  there  had  been  no  change  whatever  save  that  in 
the  relative  proportions  of  passenger  and  freight  movement, 
this  average  cost  would  have  increased  to  $1.03. 


Item 

Traffic  move- 
ment in  1911 

Average  oper- 
ating expenses 
per  train  mile 
in  1890 

Column  2  multiplied 
by  column  3 

Passenger  miles 

Ton  miles 

33,201,694,699 
253,783,701.839 

$0.81 
1.06 

$26,893,372,706.19 
209,010,723,949.34 

All  traffic 

286,985,396,538 

$295,904,096,655.53 

$295,904,096,655.53  ^-  286,985,396,538  —  $1.08. 


64 


A  further  comparison  may  be  based  upon  the  ofBcial  data 
for  1890  and  1911.  The  following  figures  are  from  the  Report 
on  Statistics  of  Railways  for  1890: 


Item 

Gross   receipts 
per  mile  carried 

Operating  ex- 
penses per  mile 
carried 

Net  receipts 
per  mile  carried 

Passenfijer 

(cents) 

2.167 

.941 

(cents) 

1.917 

.604 

(cents) 
0.2oO 

Freight — tons 

.337 

In  1911,  the  railways  of  the  United  States,  according  to  the 
interstate  Commerce  Commission,  carried  33,201,694,699  pas- 
sengers and  253,783,701,839  tons  of  freight  one  mile.  Simple 
computations  show  that  if  they  had  obtained  an  average  net 
revenue  of  0.250  cent  per  passenger  mile  from  33,201,694,699 
passengers,  the  total  net  revenue  from  that  service  would  have 
amounted  to  $83,004,236.75,  and  that  average  net  revenue  per 
ton  of  freight  per  mile,  on  the  basis  of  253,783,701,839  ton 
miles,  would  have  produced  a  total  net  from  freight  of 
$855,251,075.20.  Hence,  if  the  margin  of  net  revenue 
that  prevailed  in  1890,  on  both  classes  of  traffic, 
had  been  maintained  in  1911,  the  aggregate  net 
receipts  from  tbese  sources  would  have  amounted  to 
$938,255,311.95.  Senator  Cummins'  figure  for  that  year  is 
$874,707,664.  and  would  be  somewhat  reduced  if  the  proper 
corrections  were  applied. 

Furthermore,  when  it  is  stated  that  the  average  net  receipts 
per  train  mile  in  1890  amounted  to  48.225  cents  and  in  1911  to 
70.486  cents  {p.  7^5Jf)  there  is  no  mention  of  the  fact  that  the 
train  mile  of  1911  was  a  very  difi'erent,  a  very  much  more  costly 
and  a  very  much  more  efficient  unit  than  the  train  mile  of  1890. 
Using  Senator  Cummins'  figures,  the  following  comparisons 
are  ofi'ered. 


65 


Year 

Gross   receipts 
per  train  mile 

Operating    ex- 
penses per 
train    mile 

Net  receipts 
per  train  mile 

Percentage    of    gross 
receipts    in    excess 
of      operating     ex- 
penses 

1890 
1911 

$1.44281 

2.24824 

$0.96006 
1.54338 

$0.48225 
0.70486 

83.44 
31.35 

The  best  measure  of  the  freight  train  mile,  as  a  transporta- 
tion unit,  is  the  averarije  train  load.  This  has  increased  vastly 
since  1890,  as  shown  below  : — 


Year 


1890 
1891 
1892 
1893 
1894 
1895 
1896 


1 

Average  train 

Year 

load  in  tons 

175.12 

1897 

181.67 

1898 

181.79 

1899 

183.97 

1900 

179.80 

1901 

189.69 

1902 

198.81 

1903 

Average  train 
load  in  tons 


204.62 
226.45 
243.52 
270.86 
281.26 
296.47 
310.54 


Year 


1904 
1905 
1906 
1907 
1908 
1909 
1910 
1911 


Average  train 
load  in  tons 


307.76 
322.26 
344.;59 
357.35 
351.80 
362.57 
380.38 
383.10 


Averages  derived  from  the  foregoing,  showing  increases  as 
compared  with  the  year  1890,  can  now  be  placed  in  juxtaposi- 
tion with  those  used  by  Senator  Cummins  witli  relation  to  in- 
creases in  net  revenues  per  train  mile. 


Percentage  increase  over  1890 

Period 

Net  revenues  per  train 

mile  siiown  by  Senator 

Cummins  (p.  7B54) 

Average  load  of 
freight  trains 

1890-1894  

3.22  1 
1.72  » 
28.91 
42.81 
57.10 
46.16 

3.13 

1895-1899  

1900-1904  

1905-1909  

21.89 

70.22 

101.30 

1910 

117.21 

1911 

118.76 

Decrease. 


66 

It  certainly  could  not  be  expected  that  the  railways  would 
be  able  to  haul  118.76  per  cent  more  freight  in  each  average 
or  typical  train  without  entailing  considerably  higher  capital 
expenses,  and  the  increase  of  46.16  per  cent  made  so  promi- 
nent by  Senator  Cummins  seems  really  insignificant  when 
illuminated  by  the  facts  concerning  the  growth  of  the  train- 
load  and  when  it  is  remembered  that  out  of  this  46.16  per 
cent  of  increase  in  net  revenues  (that  is,  balance  left  after 
meeting  the  expenses  of  operation)  provision  must  be  made 
for  taxes,  unproductive  alterations  or  improvements,  interest 
on  current  and  funded  indebtedness,  and  return  to  the  owners 
of  the  property  (dividends). 

These  increases  in  trainload  have  not  been  obtained 
without  great  additions  to  the  cost  of  the  properties.  It  is 
not  only  that  the  size  and  tractive  power  of  locomotives 
had  to  be  greatly  increased  and  the  size,  capacity 
and  strength  of  freight  train  cars  largely  augmented 
and  all  trains  supplied  with  air  brakes  and  im- 
proved safety  appliances — all  these  things  required  enormous 
expenditures  of  capital,  but,  in  addition  it  was  necessary, 
in  order  to  move  the  larger  and  heavier  rolling  stock  and 
the  longer  and  heavier  trains,  to  enlarge  tunnels,  strengthen 
all  bridges,  replace  light  rails  with  heavy  rails,  reduce  grades 
and  lengthen  the  radii  of  curves.  These  additions  to  the 
value  of  the  property  involve  not  only  added  charges  for 
maintenance,  but  as  they  were  possible  only  by  means  of 
heavy  expenditures  of  capital,  they  have  necessarily  involved 
proportionate  increases  in  the  payments  for  use  of  capital — 
that  is  in  interest  and  dividends. 

Average  grosfi  I'eceipfs,  operating  expenses  {not  ii^clnding  ia.res) 
and  nei  reveyiiies  per  mile  of  line.  On  pages  7254-7255,  Senator 
Cummins  introduces  data  showing  the  foregoing  averages  on 
the  basis  of  miles  of  line,  that  is  distances  between  terminals. 
Such  averages  make  allow'ance  neither  for  the  much  greater 


67 

proportion  of  additional  trackage  (that  is,  extra  main  tracks, 
sidings  and  yard  tracks),  to  mere  length  of  line,  to  the  im- 
proved quality  of  the  road  bed  and  structures,  nor  to  the 
largel}^  increased  cost  aud  intrinsic  value  represented.  Tables 
attached  hereto  as  appendices  A,  B  and  C  show  the  fignres 
used  by  Senator  Cummins  modified  by  the  corrections  made 
necessary  by  the  changes  in  the  Commission's  classification  of 
accounts. 

Relation  of  Railway  Income  to  Bailway  Capital  ajid  Capital 

i 

Secvrities :  As  an  incident  to  his  third  conclusion,  Senator 
Cummins  appears  to  have  been  seriously  misled  as  to  the 
relation  of  railway  income,  that  is  the  balance  of  gross  re- 
ceipts over  necessary  expenses,  taxes  and  interest  indebtedness, 
to  the  par  of  railway  securities,  aud  also,  to  real  railway 
capita],  that  is  to  the  amount  represented  by  property  used  for 
railway  purposes.     He  said  : 

"  This  means  that  the  railway  companies  as  a  whole 
earned  enough  in  1913  to  pay  seven  per  cent,  upon  all 
their  capital  stock,  whereas  we  have  seen  that  five  per 
cent  actually  paid  makes  such  stock  attractive  to  the 
investing  public,  aud  is  sufficient  to  invite  complete 
confidence  "  (p.  7252). 

The  erroneous  character  of  the  assumption  underlying  the 
foregoing,  that  a  railway  can  pay  out  in  dividends  the  last 
dollar  of  its  annual  balance  of  income  over  expenses,  taxes 
and  interest,  has  already  been  explained  and  it  has  also  been 
made  clear  that  five  per  cent  dividends  do  not  suffice  to  attract 
purchases  at  par  of  new  shares.  It  is  also  to  be  remarked 
that  comparisons  of  this  character  include  no  allowance  for 
return  upon  sums  earned  but  not  withdrawn,  in  dividends,  by 
the  owners  and  not  made  the  basis  of  additional  security 
issues.  If  the  owners  of  a  railway  property  are  justly  entitled 
to  not  less  than  six  per  cent  dividends  but  go  without  any 
dividends,  or   with  dividends    at  lower   rates,  in  order  to   im- 


68 

prove  or  extend  the  property,  they  are  entitled  to  a  return 
upon  their  funds  which  they  have  permitted  to  remain  in  the 
public  service.  And  whatever  the  property  may  have  earned 
at  reasonable  rates  belongs  to  the  owners,  and  if  not  withdrawn, 
should  bring  them  a  fair  return.  In  other  words,  if  the  par 
values  of  securities  are  to  be  used  at  all  in  calculating  rates  of 
return,  there  should  at  least  be  added  to  such  values  the  full 
amount  of  surplus  accumulated  and  on  hand,  for,  having 
deferred  their  demand  for  what  earnings  justly  belong  to  them, 
the  owners  are  entitled  to  income  upon  the  added  capital 
which  they  thus  loan  to  the  company.  Senator  Cummins' 
figures  make  no  allowance  for  this  return. 

Furthermore,  the  validity  of  Senator  Cummins'  final  aver- 
ages depends  upon  the  accuracy  of  the  deductions  from 
operating  income  which  he  has  made  on  account  of  interest, 
etc.  The  amounts  he  has  deducted  for  these  purposes  are 
those  reported  by  the  Interstate  Commerce  Commission. 
They  do  not  include  all  interest  obligations,  but  only  those 
which  have  been  covered  by  charges  in  the  railway  accounts. 
Thus,  if  interest,  cumulative  or  otherwise,  on  income  bonds 
has  not  been  provided  for,  or  if  charges  in  the  books  have  not 
been  made  on  account  of  interest  that  has  not  been  earned, 
the  data  reported  by  the  Commission  are,  to  that  extent,  too 
low.  In  many  recent  instances  no  interest  upon  income  bonds 
has  been  provided  for  and  as  to  railways  in  the  hands  of  re- 
ceivers, no  charge  has  been  made  for  interest  on  securities  in 
default.  If  corrections  for  these  omitted  deductions  could  be 
made,  the  final  averages  would  be  materially  reduced.  Nor  do 
Senator  Cummins'  figures  contain  anything  for  discount  on 
securities  sold  nor  for  losses  sustained  on  account  of  property 
retired  and  not  replaced.  But,  disregarding  these  objections, 
the  official  statistics  do  not  support  Senator  Cummins'  belief 
that  the  railways  earned  seven  per  cent  on  their  stock  in  the 
year  1913.  Actually,  they  earned  very  much  less  than  that, 
as  will  appear  from  the  following : 


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71 

It  should  be  remembered  that  the  foregoing  figures  do  uot 
include  any  securities  outstanding  against  switching  or  terminal 
companies,  and  that  the  interest  charges  stated  are  exclusive 
of  the  charges  on  bonds  or  other  indebtedness  of  such  com- 
panies. Moreover  the  deductions  from  income,  although  in- 
cluding discounts  on  securities  sold,  when  such  discounts  were 
charged  agaiust  income,  do  not  include  similar  charges  against 
profit  and  loss.  It  is  significant  that,  in  1913,  charges  to  profit 
and  loss  on  this  account,  for  railways  having  gross  operating 
receipts  of  $1,000,000,  or  more,  aggregated  $26,879,417.  In 
the  same  year  these  larger  roads  were  obliged  to  charge 
profit  and  loss  with  retired  road  and  equipment  to 
the  amount  of  $10,936,937.  The  interest  on  Income  and 
other  bonds  which  accrued  and  which  the  roads  were  unable 
to  pay  in  1913  aggregated  $11,606,533,  the  delayed  income 
debits  charged  to  Profit  and  Loss  during  that  year  amounted 
to  $1,763,868.  It  is  apparent,  therefore,  that  it  would  have 
been  perfectly  correct  to  have  deducted  a  further  item  of 
$51,186,755  from  the  income  of  1913  before  stating  the 
"  balance  available  for  dividends,"  etc.  If  this  deduction 
had  been  made  the  balance  shown  would  have  amounted 
to  only  5.73  per  cent  of  the  outstanding  stock.  But  with  no 
allowance  for  these  and  similar  charges  to  profit  and  loss  the 
table  shows  only  4.60  per  cent  on  stock  in  1914,  6.56  in  1913, 
5.74  in  1912  and  6.41  in  1911.  Obviously,  too,  only  part  of 
this  balance  could  safely  be  distributed  in  any  year. 

Much  more  useful  comparisons  are,  however,  those  which 
place  the  whole  balance  left  from  income,  after  deduction  of 
necessary  expenses  and  taxes,  in  juxtaposition  with  the  real 
capital,  that  is  cost  of  the  property  (See  page  31,  herein). 
Such  figures  show  that  on  all  the  property  devoted  to  the 
public  service  the  railways  earned  but  4.10  per  cent  in  1914, 
4.83  per  cent  in  1913,  4.55  per  cent  in  1912  and  4.85  per  cent 
in  1911. 


71 

It  should  be  remembered  that  the  foregoing  figures  do  not 
include  any  securities  outstanding  against  switching  or  terminal 
companies,  and  that  the  interest  charges  stated  are  exclusive 
of  the  charges  on  bonds  or  other  indebtedness  of  such  com- 
panies. Moreover  the  deductions  from  income,  although  in- 
cluding discounts  on  securities  sold,  when  such  discounts  were 
charged  against  income,  do  not  include  similar  charges  against 
profit  and  loss.  It  is  significant  that,  in  1913,  charges  to  profit 
and  loss  on  this  account,  for  railways  having  gross  operating 
receipts  of  $1,000,000,  or  more,  aggregated  $26,879,417.  In 
the  same  year  these  larger  roads  were  obliged  to  charge 
profit  and  loss  with  retired  road  and  equipment  to 
the  amount  of  $10,936,937.  The  interest  on  Income  and 
other  bonds  which  accrued  and  which  the  roads  were  unable 
to  pay  in  1913  aggregated  $11,606,533,  the  delayed  income 
debits  charged  to  Profit  and  Loss  during  that  year  amounted 
to  $1,763,868.  It  is  apparent,  therefore,  that  it  would  have 
been  perfectly  correct  to  have  deducted  a  further  item  of 
$51,186,755  from  the  income  of  1913  before  stating  the 
"  balance  available  for  dividends,"  etc.  If  this  deduction 
had  been  made  the  balance  shown  would  have  amounted 
to  only  5.73  per  cent  of  the  outstanding  stock.  But  with  no 
allowance  for  these  and  similar  charges  to  profit  and  loss  the 
table  shows  only  1.60  per  cent  on  stock  in  1914,  6.56  in  1913, 
5.74  in  1912  and  6.41  in  1911.  Obviously,  too,  only  part  of 
this  balance  could  safely  be  distributed  in  any  year. 

Much  more  useful  comparisons  are,  however,  those  which 
place  the  whole  balance  left  from  income,  after  deduction  of 
necessary  expenses  and  taxes,  in  juxtaposition  with  the  real 
capital,  that  is  cost  of  the  property  (See  page  31,  herein). 
Such  figures  show  that  on  all  the  property  devoted  to  the 
public  service  the  railways  earned  but  4.10  per  cent  in  1914, 
4.83  per  cent  in  1913,  4.55  per  cent  in  1912  and  4.85  per  cent 
in  1911. 


72 
ADDITIONAL  SUGGESTIONS. 

Impairment   of   Eailway   Income  by   Eeason  op   Diminished 
Purchasing  Power  of  Money. 

That  money,  the  measure  of  values,  the  medium  of 
exchange  and  the  ordinaiy  standard  of  deferred  pay- 
ments, is  not  perfectly  adapted  to  those  uses,  is  a 
commonplace  of  economic  science.  No  device  capable  of 
meeting  the  requirements  of  intrinsic  lvalue  and  at  the  same 
time  immune  to  variations  in  its  value  as  a  commodity  has 
ever  been  discovered  and  it  is  extremely  probable  that  the 
qualities  suggested  are  so  inconsistent  that  their  coexistence 
in  one  object  is  impossible.  Therefore,  money  varies  in  value 
from  period  to  period  and  at  times  its  purchasing  power  is  rela- 
tively high,  at  others  relatively  low.  Now  it  has  long  been  recog- 
nized that  these  inevitable  fluctuations  in  the  value  of  money 
must  work  hardship.  Debtors  on  long-time  contracts  are 
prejudiced  by  a  rise  in  the  value  of  money,  such  a  change 
being  the  equivalent  of  a  fall  in  the  price  of  commodities  and 
labor  (although  different  commodities  and  different  forms  of 
labor  will  always  be  affected  differently)  and  implying  that 
greater  effort  is  necessary  to  procure  a  particular  sum.  On 
the  other  hand,  creditors  on  long-time  contracts  and  all  per- 
sons having  fixed  money  incomes,  or  who  supply  commodities 
or  services,  the  prices  or  rates  for  which  are  fixed  by  law  or 
custom,  necessarily  suffer  when  money  falls  in  value,  as  the 
prices  they  have  to  pay  are  enhanced  without  any  corre- 
sponding adjustment  in  their  receipts. 

Professor  Irving  Fisher,  of  Yale  University,   an    authority 
upon  monetary  problems,  recently  said  : 

"  During  the  last  fifteen  years,  although  the  gold 
dollar  has  remained  the  same  in  size,  its  purchasing 
power  has  fallen  to  two-thirds  of  the  dollar  of  fifteen 
years  ago.  This  shrinkage  in  the  monetary  yard-stick 
has  injured  all  those  who  had  expected  to  receive  a  fixed 
number  of  dollars — salaried   men,    wage-earners,  bond- 


73 

holders,  sayings'  bank  depositors  and  many  others." 
"  Instahility  of  Gold"  lecture  hy  Professor  Irving  Fisher 
for  the  A  lexander  Hamilton  Institute,  p.  6. 

Other  assertions  of  the  same  principle  by  competent 
authorities  follow  : 

"  Variations  in  the  exchange  value  of  an  article  are 
indicated  by  changes  in  prices,  aud  changes  in  prices  are 
themselves  the  index  of  changes  in  the  exchange  value 
of  money.  Limiting  the  discussion  to  this  definition  of 
value,  it  would  be  futile  to  argue,  for  instance,  that 
gold  has  not  '  appreciated  '  in  regard  to  given  articles 
when  their  prices  had  fallen,  and  equally  futile  to  argue 
that  it  had  not  '  depreciated  '  when  prices  had  risen  " 
Charles  A.  Conant :  The  Principles  of  Money  and  Bank- 
ing, Vol.  I,  p.   153. 

"  A  fall  in  the  value  of  money  and  a  rise  in  prices 
are  not  two  occurrences,  certainly  not  two  occurrences 
standing  to  each  other  in  the  relation  of  cause  and 
effect  ;  they  constitute  a  single  occurrence  described  in 
two  different  ways." — Dr.  Pierson,  late  Minister  of 
Finance  of  The  Netherlands. 

Applying  these  principles  to  American  railway  charges,  in 
testimony  before  the  Interstate  Commerce  Commission  in  the 
recent  Advanced  Rate  case,  Mr.  Charles  A.  Conant,  said, 
in  part  : — 

"  It  is  pertinent  to  this  enquiry  to  set  side  by  side 
with  these  changes  in  the  purchasing  power  of  money 
the  changes  which  have  taken  place  in  the  rate  of  com- 
pensation received  by  the  railways  for  passengers  and 
freight.  Fortunately,  the  system  of  statistics  estab- 
lished by  the  Interstate  Commerce  Commission  permits 
an  ascertainment  of  the  average  receipts  per  unit  of 
service  by  the  railways  of  the  United  States.  Taking  the 
receipts  for  freight  alone  per  ton-mile  and  expressing 
them  in  mills,  or  tenths  of  a  cent,  it  appears  that  this 
average  of  ton-mile  receipts  varied  only  within  narrow 
limits  during  the  Avhole  of  the  sixteen  years  from  189C 
to  1912,     In  181)0,  the   average    receipts   per   ton-mile, 


74 

were  8.06  mills  ;  in  1912,  they  were  7.43  mills.  This 
represented  a  decline  of  63  hundredths  of  a  mill,  or 
about  seven  per  cent.  This  decline  in  freight  receipts, 
however,  was  onlj  the  decline  expressed  in  terms  of 
money. 

"  Quite  different  and  striking  results  are  obtained  if 
one  compares  the  purchasing  power  of  this  money  in 
1896  with  its  purchasing  power  in  1912.  Such  a  com- 
parison is  easy  and  simple  under  the  system  of  index 
numbers.  In  order  to  determine  this  ratio  of  purchas- 
ing power,  it  is  only  necessary  to  divide  the  rate  per 
ton  mile  by  the  index  number  for  prices.  The  result 
gives  the  relationship  of  the  ton-mile  revenue  in  pur- 
chasing power  on  different  dates,  expressed  in  mills, 
upon  the  basis  of  the  average  of  prices  from  1890  to 
1899.  If  the  receipts  per  ton -mile  in  1896  were  8.06 
mills,  and  wholesale  prices  bore  a  ratio  to  the  standard 
of  90.4  points,  the  purchasing  power  of  the  receipts  per 
ton-mile  was  8.92  mills.  As  the  index  number  of  prices 
advanced,  however,  even  if  receipts  remained  the  same 
in  terms  of  money,  the  purchasing  power  of  the  receipts 
inevitably  fell  in  a  striking  ratio. 

"  After  the  revival  of  business  activity  in  1897,  re- 
ceipts per  ton  mile  declined  only  slightly,  but  the  index 
number  of  wholesale  prices  increased  rapidly.  The  re- 
sult was  that  the  purchasing  power  of  the  money  received 
for  freight  fell  from  a  ratio  of  8.06  in  1898  down  to 
6.61  in  1905.  Then  began  another  decline,  interrupted 
only  by  the  depression  of  1908,  which  finally  carried 
the  ratio  of  purchasing  power  of  freight  receipts  in  1912 
down  to  5.56.  When' this  purchasing  power  of  the  re- 
ceipts per  ton-mile  is  compared  with  the  corresponding 
figure  of  1896,  we  find  a  decline  of  3.36  mills,  or  37.6 
per  cent.  I  conclude,  therefore,  simply  as  a  question  of 
mathematics,  and  without  undertaking  to  enter  into  the 
intricacies  of  railway  accounting  or  the  special  demands 
which  have  been  made  upon  the  railways,  that  the  pur- 
chasing power  of  the  moneys  which  are  now  paid  for 
freight  is  approximately  37  per  cent,  less  in  the  market 
for  commodities  than  it  was  in  1896." 

"  From  1903  to  1912  there  was  a  decrease  of  17.1 
per  cent  in  the  purchasing  power  of  ton-mile  earnings, 


75 

and  even  from  1908  to  1912  a  decline  of  9.4  per  cent  or 
nearly  twice  the  proportion  in  which  it  is  now  asked 
that  permission  be  given  to  advance  nominal  rates  ex- 
pressed in  terms  of  money. 

"  The   calculations   for   the    entire   railway    system 
follow : 


Purchasing  Po-wer  of  Receipts  Per  Ton-Mile 

Average  re-  Index  number  of  Corrected  pur- 

ceipts  per  wholesale  prices,  chasing  ratio  of 

ton  mile,  on  basis  of  receipts  per  ton 

Year.          in  mills  1890-1899.  mile,    in  mills 

1880 12.32  147.5  8.35 

1885 10.11  115.8  8.73 

1890 9.41  112.9  8.33 

1895 8.39  93.6  8.96 

1896 8.06  90.4  8.92 

1897 7.98  89.7  8.90 

1898 7.53  93.4  8.06 

1899 7.24  101.7  7.12 

1900 7.29  110.5  6.60 

1901 7.50  108.5  6.91 

1902 7.57  112.9  6.71 

1903 7.63  113.6  6.72 

1904 7.80  113.0  6.90 

1905 7.66  115.9  6.61 

1906 7.48  122.5  6.11 

1907 7.59  129.5  5.86 

1908 7.54  122.8  6.14 

1909 7.63  126.5  6.03 

1910 7.53  131.6  5.72 

1911 7.57  129.2  5.85 

1912 7.43  133.6  5.56 

"  Results  substantially  similar  are  obtained  for  the 
railways  in  eastern  territory,  with  their  generally  lower 
average  of  tou-mile  receipts.  For  the  ten-year  period 
1903-1912,  the  decline  in  the  purchasing  power  of 
freight  earnings  works  out  at  18.8  per  cent.  The  follow- 
ing table  gives  the  calculations  for  railways  in  eastern 
territory : 


76 

Purchasing  Power  of  Receipts  Per  Ton-Mile 
Eastern  Territory. 

Index  number  Corrected 

Average           of  wholesale  purchasing 

Year                receipts  per          prices,    on  ratio  of  receip 

ton  mile,  in       basis  of  1890-  per  ton  mile, 

mills                       1899  in  mills 

1903 6.76  113.6  5.94 

1904 6.94  113.0  6.14 

1905 6.73  115.9  5.80 

1906 6.54  122.5  5.33 

1907 6.59  129.5  5.08 

1908 6.58  122.8  5.35 

1909 6.54  126.5  5.17 

1910. ._ 6.46  131.6  4.90 

1911 6.49  129.2  5.02 

1912 6.44  133.6  4.82 

1913 6.37  

Percentage  of  decline  in  purchasing  ratio, 

1903-1912  __ _ „.  18.8  per  cent" 

On  the  same  occasion  Mr.  Conant  also  said : 

"  It  is  this  fact  which  faces  the  railways  as  well  as 
other  producers  and  investors,  and  with  which  they 
have  had  to  deal  in  recent  years.  Those  producers  who 
have  been  able  to  operate  in  a  market  where  they  wtre 
free  to  use  their  own  judgment  and  economic  power  in 
fixing  prices  or  wages,  have  been  able  to  adapt  them- 
selves more  or  less  rapidly  to  the  depreciation  in  the 
purchasing  power  of  the  dollar.  If  they  were  workers 
for  wages,  they  have  been  able  to  demand  increases 
in  their  wages  to  enable  them  to  meet  the  increased 
cost  of  living,  as  expressed  in  dollars.  If  they 
were  dealers  in  articles  of  retail  trade,  they  have 
been  able  to  advance  the  prices  of  those  articles  from 
time  to  time  to  cover  the  increased  cost  of  obtaining 
them  at  wholesale  or  directly  from  the    producer.     By 


77 

this  means,  they  have  succeeded  in  effecting  the  eco- 
nomic adjustment  of  their  position  to  the  diminished 
purchasing  power  of  the  dollar.  The  process  has  been 
gradual,  although  the  figures  which  I  shall  soon  pre- 
sent will  show  that  it  has  been  rapid.  The  fact  that 
it  has  been  gradual,  and  that  wage-earners  and  mer- 
chants have  been  able  to  adapt  themselves  gradually  to 
the  change,  has,  to  a  certain  extent,  concealed  its  real 
economic  significance. 

"  A  warm  political  campaign  was  waged  in  this  coun- 
try seventeen  years  ago,  in  which  it  was  declared  on 
one  side  that  the  purpose  of  the  other  side  was  to  cut 
the  valne  of  the  dollar  in  two  by  substituting  for  the 
gold  dollar,  which  was  the  standard,  a  dollar  of  another 
metal  having  only  half  the  value  of  the  old.  Rightly  or 
wrongly,  it  was  declared  that  there  was  likely  to  ensue 
a  rise  of  prices,  expressed  in  the  cheaper  dollars,  which 
would  be  so  sudden  and  rapid  that  it  would  not  be  pos- 
sible for  the  wage-earner  to  keep  pace  with  the  change, 
and  that  he  would  suffer  at  first  a  diminution  of  one- 
half  in  the  purchasing  power  of  his  wages  before  he 
could  obtain  even  a  partial  adjustment  of  the  number 
of  dollars  paid  him  to  their  diminished  value  in  ex- 
change for  other  things. 

"  Something  like  the  process  of  this  predicted  change 
has  been  going  on  from  quite  other  causes  during  the 
past  seventeen  years,  but  the  fact  that  it  has  occurred 
without  any  change  in  the  statutes  fixing  the  amount  of 
metal  or  the  kind  of  metal  in  the  dollar  has  veiled  its 
real  significance  to  the  average  man,  and  has  prevented 
taking  measures  of  protection  against  its  effects  except 
through  efforts  to  increase  wages  and  prices. 

"  What  would  have  been  said  if  it  had  been  proposed 
by  law  in  1896  to  require  the  railways  to  reduce  their 
rates  from  35  to  50  per  cent  within  fifteen  years  ? 
What  would  have  been  the  protests  and  what  would 
have  been  the  unsettlement  of  the  value  of  railway 
securities  in  the  market  if  an  order  had  been  made  by 
this  Commission  to  any  such  effect  ?  But  the  silent 
and  irresistible  processes  of  economic  forces  have  re- 
duced  the   money  value   of   these  rates  something  like 


78 


this  proportion  within  the  past  sixteen  or  seventeei 
years,  while  the  railways  have  suffered  a  steadj^  impair- 
ment of  their  earnings,  and  for  a  number  of  years  past 
have  been  restricted  by  statute  law  from  adapting 
themselves,  like  other  industries,  to  the  new  monetary 
conditions," 


Governmental  Pressure  Upon  Earnings. 

For  many  years  the  tendencies  of  American  governments, 
Federal,  State  and  Municipal,  have  been  to  depress  the  corporate 
income  of  the  railways  and  to  weaken  the  confidences  of  in- 
vestors in  the  stability  of  railway  securities.  By  no  means 
the  greatest  of  the  many  elements  of  this  pressure  has  been 
the  rapidly  increasing  burden  of  taxation,  which  the  railways 
have  been  forced  to  bear.   This  is  shown  by  the  following  table  : 

Taxes. 


Per  cent  of  taxes  to 

Balance    of     gross 

balance  of    gross 

operating  receipts 

operating  receipts 

Year. 

over  operating  ex- 

Amount of  taxes. 

over  operating  ex- 

penses and  inter- 

penses and  inter- 

est   on    indebted- 

est  on  indebted- 

ness. 

ness. 

1902 ___ 

$342,118,570 

$54,465,437 

15.92 

1903 

365,416,846 

57,849,569 

15.83 

1904 

340,214,391 

61,692,354 

18,13 

1905 

385,624,970 

63,474,679 

16.46 

1906 

471,897,066 

74,785,615 

15.85 

1907. ._ 

492,691,574 

79,640,013 

16.16 

1908 

335,180,133 

78,673,794 

23,47 

1909 

404,700,513 

85,139,554 

21,04 

1910 

513,887,110 

98,034,593 

19.07 

1911 

438,240,959 

108,309,512 

24.71 

1912 

417,365,048 

120,619,874 

28.90 

1913__ _ 

493,088,450 

129,836,100 

26,33 

1914 

392,981,550 

150,371,100 

38.26 

79 

The  foregoing  figures  have  been  adjusted  so  far  as  neces- 
sary in  order  to  allow  for  changes  in  the  accounting  system 
prescribed  by  the  Interstate  Commerce  Commission.  They 
show  heavy  increases  both  in  the  total  amount  of  the  taxes 
exacted  and  in  the  ratio  of  these  amounts  to  the  funds  out  of 
which  they  must  be  paid.  Thus  in  1914  the  railways  paid 
$2.39  in  taxes  for  every  $1.00  which  they  were  required 
to  pay  in  1902  and  out  of  each  $1.00  available  for  such  pay- 
ments in  1914  they  paid  thirty-eight  cents  which  is  to  be  com- 
pared with  sixteen  cents  in  1902. 

In  addition  to  increased  taxation,  Federal  and  State  legis- 
lation, in  the  form  of  hours  of  service  laws  for  employees,  full 
crew  laws,  requirements  concerning  the  preparation,  filing  and 
posting  of  rate  schedules  and  annual  and  periodical  reports, 
locomotive  regulations,  such  as  those  in  regard  to  washing, 
testing  and  inspection,  etc.,  employers'  liability  acts,  elimin- 
ation of  grade  crossings  and  other  items  of  this  character,  has 
added  very  large  sums  to  the  annual  cost  of  railway  operation. 
As  the  extent  of  these  expenditures  on  the  part  of  The  Dela- 
ware and  Hudson  Company  is  typical  of  those  throughout  the 
whole  American  railway  system,  the  following  table  showing 
how  much  these  provisions  of  law  have  cost  that  property  is 
pertinent : 


1909 

1908 

1907 

1 

[^ 

Expenses 

Capital 

Expenses 

Capital 

Expenses 

Total 
1 

$24,819.43 

K  n  ir>  fin 

$21,477.00 
(5)  4,950.00 
(5)  1,638.99 

$4,138.75 

(1)$172,310.36     / 
40,310.00     1 

\             2  172  13 

10,564.04     "  J 
2,275.00       ^ 

99.924.95 

40.832.88 

86,628.80 

170,042.00 

r 

** ••  •* 

,      12,600.00 
25,000.00 

10,740.00 
23,017.00 

$61,822.99 

10,320.00 
23,025.00 

^570,531. 56 

$86,483.75 

$622,888.03 

$'26,129.00 
6.855.00 

47,712.71 

$12,624.00 

$5,757.00 

$116,320.00 

48,025.10 

20,546.46 

10,300.57 

177,667.74 

$80,696.71 

$33,170.46 

$16,057.57 

$342,012.84 

$4,568.57 

$36,549.77 

365.84 

$1,153.20 

$45,495.14 

$248,751.16 

250.00 

19,126.12 

8,491.75 

• 

615.84 

$1,158.20 

$45,495.14 

$271,369.03 

$6,280.00 

$180,111.82 

$26,095.00 
5.200.00 
2,500.00 
1,000.00 

$26,095.00 
5,200.00 

$8,698.00 
1,064.00 

$175,572.60 

33.439.00 
13,500.00 

7,930.00 

$34,795.00 

$31,295.00 



9,762.00 

$229,441.60 

$12,718.43 

,615.84 

$196,871.84 

$1,153.20 

$126,288.45 

$45,495.14         $62,303.32 

$1,695,091.52 

1 
t' 

81 

1913 

1913 

1911 

1910 

1909 

1908 

1907 

Capital 

Ex,: 

Capital 

Expenses 

Capital 

Expenses 

Capital 

Expenses 

Capital 

Expenses 

Capital 

Expenses 

Capital 

Expenses 

Total 

RELATIONS  WITH  EMPLOYEES 
Hours  of  Service  Laws  : 

t  44 

J'.OI) 

>',.w 

)4.4i) 
.  .'5  S« 

$37,631.03 
6,852.00 
1,533.74 

$29,657.13 
6,853.00 
1,576.40 

$38,503.58 
6.624.00 
1,858.39 

$24,819.43 
5.940.00 
2,172.13 

$21477.00 
(6)  4,950.00 
(3)  1,638.99 

$4,138.75 

(1)$172,310.36 

10,564.04 

(1) 

Full  Crew  Laws : 

43,358.94 

(3)      17,371.52 

(3) 

40,832  88 

'?6.o6 

13,749.40 
35,000.00 

12,749.40 
25,000.00 

13,600.00 
35,000.00 

13,600.00 
35,000.00 

10,740.00 
33,017.00 

10,320.00 
33,025.00 

86,638  80 

Loss  of  Interest  Account  Necessary  Increased  Work— Fund 

_^_^.^.^ 

170  043  00 

•*r 

■1  on 

$116,134.11 

$93,306.45 

$74,585.97 

.«70,531.56 

$61,822.99 

$36,483.75 

$623  888  03 

" 

OFFICE  AND  LEGAL 

*■      10.00 
lil.50 

:     is.w 

$17,400.00 
9.483.60 
18,967.95 

$17,400.00 
10,613.00 
28,863.36 

$17,400.00 
11,675.00 
23,303.70 

$36,139.00 
0,85.5.00 
47,713.71 

$12,634.00 

$5,757.00 

48.02.5.10 

20,546.46 

10,300.5" 

177.607.74 

*i      ^3.49 

$45,851.55 

$56,871.36 

$53,378.70 

$80,696.71 

$33,170.46 

$16,057.57 

$343,013.84 

REVENUE 

$45,153.54 
10,025.11 

(4        -■       3(1. 35 

$9,137.77 

$9,136.96 

$9,137.12 

$4,368.57 

$36,549.77 

ROADWAYS  AND  STRUCTURES 

ElimiDation  of  Grade  Crossings— New  York 

\ 

1 

$39,160.39 
1,178.53 

$55,322.50 
705.00 

.$201.55 
6,967.48 
5,094.43 

$57,365.84 
250.00 

$1,153.20 

$45,495.14 

$343,751.16 

19,136.13 

$3,397.33 

8,491.75 

$55,177.65 

'1 

Total 

$40,338.93 

$55,937.50 

$13,363.45 

$3,397.33 

$57,615.84 

$1,153.20 

$45,495.14 

$271,369.03 

OPERATION 

1 

$60,527.61 

$30,833.00 

$31,837.00 

$6,380.00 

$180,111.83 

1 

f;    |94.5<; 

50.0(1 

OO.OU 

,/  50.00 

EQUIPMENT  AND  REGULATIONS 
Locomotives  ; 

$29,945.12 
5,650.00 
3,500.00 
1,000.00 

$38,049.93 
5,675.00 
2,500.00 
1,000.00 

$26,095.00 
5,200.00 
2.500.00 
1,000.00 

$26,095.00 
5,200.00 
3,500.00 
1,000.00 

$26,095.00 
5,300.00 

$8,698.0C 
1,064.00 

$175,572.00 

83.439.00 

13,500.00 

Ash  Pans  and  Front  Ends 

$1,507.50 

$1,372.50 

7,930.00 

Total 

$1,507.50 

*l,,f,M.56 

$1,372.50 

$39,095.12 

$37,224.92 

$34,795.00 

$34,795.00 

$31,395.00 

9,763.00 

$239,441.60 

Reinforcing  Combination  Cars 

$13,718.43 

t 

$12,718.43 

Grand  Total 

$69,403.58 

«»:j 

i{!)6.81 

$41,711.42 

$370,736.16 

$55,937.50 

$227,264.69 

$12,363.45 

$306,131.12 

$57,615.84 

$196,871.84 

$1,153.20 

$126,388.45 

$45,495.14 

$63,303.32 

$1,695,091.63 

SAFETY 

Maintenance — Labor 

J 

00  7') 
'.8  76 
OOOO 

$33,887.00 

29,177.00 

105,686.00 

4,000.00 

$33,002.00 
32,809.00 
103,734.48 

$30,798.00 
41.449.00 
97,571.70 

$33,333.00 
41,449.00 
98,338.53 

$23,218.00 
36,780.00 
94,414.90 

$7,449.00 
59.487.00 
51,930.83 

$185,193.70 

Maintenance— Material 

393,551.75 

Operation 

668,620,25 

8,000.00 

Total 

$J, 

7i36 

$172,750.00 

$159,545.48 



$159,818.70 

$162,999.53 

$154,413.90 

$118,866.83 

$1,155,365.70 

Safely  Appliances : 

Equipment 

1 

30  86 
1)0.00 

$84,634.96 
1,200.00 

$48,671.13 
1,300.00 



$1,540.08 
1,200.00 

$1,413.44 
1,200.00 

$1,534.73 
1.300.00 

$56,062.62 

$891.89 

$273,978.10 

Inspection 

Total., 



mM 



$85,834.96 

$49,871.13 

$2,740.08 

$3,612.44 

$2,734.73 

$56,063.63 

$891.89 

$380,178.10 

CroBsing  Flagmen  and  Gatemen 

1^ 

$113,716.49 

$109,346.41 

$104,811.44 

$98,513.20 

$100,518.71 

(6) 

$647,158.55 

Total  Charges  to  Capital 

$69,403.58 

I 

$41,711.43 

$55,927.50 

$12,363.45 

$57,615.84 

$1,153.30 

$101,557.76 

$339,633.75 

Total  Cliarges  to  Expenses 

*7( 

80.57 



$643,037.61 

$546,027.70 

$471,501.34 



$460,997.07 

$383,954.79 

$183,063.04 

$3,777,793.87 

JSOTES  ;     (1)— 3  Months  only. 
(2)-6i  Months. 
(31—4    Months. 
(4)— 6    Months. 
(5)— 10  Months. 
(6)— Figures  not  Available. 

' 

83 

The  foregoing  is  not  offered  in  any  spirit  of  criticism. 
Some  of  the  expenditures  indicated,  including  most  of  those  in- 
curred to  provide  better  or  additional  signals  and  safety  appli- 
ances were  unquestionably  desirable,  while  others,  of  which 
the  so-called  "full-crew  "  laws  are  an  example,  merely  imposed 
upon  the  railways  utterly  useless  and  burdensome  obligations 
and  expenses.  In  this  paper  it  is  intended  only  to  call  atten- 
tion to  the  fact  that  an  heavy  aggregate  increase  in  operating 
expenses  has  resulted  from  this  general  class  of  legislation. 

Closely  allied  to  the  increases  due  to  explicit  legislation,  are 
those  that  have  resulted  from  arbitrations  of  differences  with 
employees  concerning  wages  and  hours  and  conditions  of 
labor.  These  arbitrations  have  been  conducted  under  the  Erd- 
man  law,  and  the  Newlands  law  by  which  the  former  was 
superseded,  Acts  of  Congress  which  while  ostensibly  providing 
means  for  arbitrations  voluntarily  agreed  upon  in  actual  prac- 
tice, operate  upon  railway  employees  with  substantially  com- 
pulsory effect.  The  Delaware  and  Hudson  Company  has  been  a 
party  to  several  arbitrations  of  this  character,  the  results  of 
which  have  similarly  affected  all  railways  in  eastern  territory. 
The  following  summary  of  the  effect  of  the  awards  in  these 
arbitrations  upon  the  annual  expenses  of  The  Delaware  and 
Hudson  Company  is  taken  from  the  annual  report  of  President 
L.  F.  Loree  for  the  year   that   ended  with  December  31,  1913. 

*'  The  award  of  the  arbitrators  in  the  case  of  the 
engineers,  in  effect  during  eight  months  of  1912,  gave 
an  advance  of  4.34  per  cent,  and  during  1913  cost  this 
company  $33,030.92.  The  arbitrators  to  whom  the  de- 
mands of  the  firemen  were  referred,  reported  on  April 
23,  1913,  their  award  taking  effect  on  May  1,  1913. 
The  increase  awarded  was  8.16  per  cent  and  the  cost  to 
this  Company,  to  December  31,  1913,  was  $27,308.53, 
or  at  the  rate  of  $40,902.80  per  year.  The  demands  of 
the  conductors  and  trainmen,  under  discussion  by  the 
General  Managers'  Association  of  New  York  at  the 
close   of  last   year,  were   submitted   to   arbitration   on 


83 

The  foregoing  is  not  offered  in  any  spirit  of  criticism. 
Some  of  the  expenditures  indicated,  including  most  of  those  in- 
curred to  provide  better  or  additional  signals  and  safety  appli- 
ances were  unquestionably  desirable,  while  others,  of  which 
the  so-called  "full-crew  "  laws  are  an  example,  merely  imposed 
upon  the  railways  utterly  useless  and  burdensome  obligations 
and  expenses.  In  this  paper  it  is  intended  only  to  call  atten- 
tion to  the  fact  that  an  heavy  aggregate  increase  in  operating 
expenses  has  resulted  from  this  general  class  of  legislation. 

Closely  allied  to  the  increases  due  to  explicit  legislation,  are 
those  that  have  resulted  from  arbitrations  of  differences  with 
employees  concerning  wages  and  hours  and  conditions  of 
labor.  These  arbitrations  have  been  conducted  under  the  Erd- 
man  law,  and  the  Newlands  law  by  which  the  former  was 
superseded,  Acts  of  Congress  which  while  ostensibly  providing 
means  for  arbitrations  voluntarily  agreed  upon  in  actual  prac- 
tice, operate  upon  railway  employees  with  substantially  com- 
pulsory effect.  The  Delaware  and  Hudson  Company  has  been  a 
party  to  several  arbitrations  of  this  character,  the  results  of 
which  have  similarly  affected  all  railways  in  eastern  territory. 
The  following  summary  of  the  effect  of  the  awards  in  these 
arbitrations  upon  the  annual  expenses  of  The  Delaware  and 
Hudson  Company  is  taken  from  the  annual  report  of  President 
L.  F.  Loree  for  the  year   that   ended  with  December  31,  1913. 

"  The  award  of  the  arbitrators  in  the  case  of  the 
engineers,  in  effect  during  eight  months  of  1912,  gave 
an  advance  of  4.34  per  cent,  and  during  1913  cost  this 
company  $33,030.92.  The  arbitrators  to  whom  the  de- 
mands of  the  firemen  were  referred,  reported  on  April 
23,  1913,  their  award  taking  effect  on  May  1,  1913. 
The  increase  awarded  was  8.16  per  cent  and  the  cost  to 
this  Company,  to  December  31,  1913,  was  $27,308.53, 
or  at  the  rate  of  $40,902.80  per  year.  The  demands  of 
the  conductors  and  trainmen,  under  discussion  by  the 
General  Managers'  Association  of  New  York  at  the 
close    of  last   year,  were   submitted   to   arbitration   on 


84 

July  26,  1913  ;  the  Board  of  Arbitrators  reported  on 
November  10,  1913,  and  the  award  took  effect  on 
October  1,  1913.  The  increase  in  wages  awarded 
amounted  to  seven  i)er  cent  and  the  increased  expense 
to  this  Company,  from  October  1  to  December  31, 
1913,  to  $26,168.02,  or  at  the  rate  of  $104,672.08 
per  year.  An  Act  of  the  Legislature  of  New  York, 
which  took  effect  on  September  1,  1913,  required 
the  railways  of  the  State  to  place  an  addi- 
tional and  unnecessary  employe  ou  the  majority 
of  their  trains.  These  employees  in  no  degree  increase 
the  safety  of  operation  or  serve  any  useful  purpose, 
but  from  September  1  to  December  31,  1913,  the  added 
cost  to  this  Company  was  $40,832.88,  or  at  the  rate  of 
$122,498.64  per  year.  A  similar  Act  of  the  Legislature 
of  Pennsylvania,  in  effect  since  July,  1911,  caused  this 
company  an  unnecessary  additional  expense,  in  1913, 
of  $40,194.49.  Together  these  items  represent  an  in- 
crease in  annual  operating  expenses  of  $341,358.93, 
which  will,  of  course,  become  greater  if  the  volume  of 
traffic  increases. 

"  During  the  year  which  ended  with  June  30,  1913, 
the  railroad  department  of  this  company  paid  to  its 
employees  the  sum  of  $8,508,673  which  was  $1,122,780, 
or  15.20  per  cent  in  excess  of  the  sum  that  would  have 
been  paid  for  the  same  services  at  the  rates  of  com- 
pensation that  were  in  force  on  June  30,  1910.  And 
this  comparison  takes  no  account  of  increases  in  wages 
that  took  effect  after  June  30,  1913." 


Increased  Competition  for  Capital. 

During  the  period  covered  by  Sentor  Cummins'  speech  the 
railroads  have  had  to  meet  progressively  increased  competi- 
tion in  the  investment  field.  Municipal  and  industrial  securi- 
ties, in  particular,  now  obtain  shares  of  the  investment  fund 
which  formerly  flowed  mainly  into  the  railroad  field.  The 
competitive  position  of  the  railroads,  in  the  struggle  to  obtain 
capital  out  of  the  general  investment  fund,  has   been  impaired 


85 

by  (1)  increases  in  the  public  and  private  demand  for  capital, 
(2)  increases  in  the  rates  of  interest  offered  for  loans  to  muni- 
cipalities, (3)  decline  of  the  credit  of  railroad  companies,  and 
(4)  enhanced  credit  of  securities  resting  upon  manufactur- 
ing enterprises. 

For  the  purposes  of  the  following  statement,  investment 
securities  are  grouped  as  :-- 

1.  Government  (State  and  Municipal). 

2.  Railroad. 

3.  Public  utility. 

4.  Industrial. 

The  issuing  or  debtor  concerns,  in  each  of  the  foregoing 
groups  comprise  a  distinct  type  of  business  or  financial  organi- 
zation. Moreover,  the  financial  or  business  operations  of 
each  group  are  influenced  by  dift'ering  conditions  affecting  in- 
vestment values. 

Broad,  general  results  of  careful  inquiries  concerning  the 
yields,  respectively,  obtained  upon  investments  in  bonds  of 
the  different  classes,  at  the  average  prices  of  each  calendar 
year  from  1903  to  the  end  of  the  first  half  of  1913  are  shown 
in  the  following  table  : 

Rate  of  Yield,  Pek  Cent. 


Year. 

Govern- 
ment. 

Public 
utility. 

Industrial. 

Railroad. 

Eastern 
railroads.* 

1903 

3.25 
3.30 
3.29 
3.43 
3.70 
3.70 
3.61 
3.77 
3.80 
3.85 
3.91 

4.63 
4.60 
4.43 
4.56 
4.91 
5.11 
4.71 
4.79 
4.77 
4.80 
4.90 

5.69 
5.81 
5.19 
5.18 
5.76 
5.90 
5.16 
5.25 
5.17 
5.18 
5.35 

4.10 
4.05 
3.91 
4.01 
4.30 
4.30 
4.08 
4.21 
4.21 
4.26 
4.41 

4.06 

iy04 

4  03 

1905 

3.93 

1906 

1907 

4.04 
4  31 

1908 

1909 

1910 

4.42 
4.11 
4.26 

1911 

1912 

1913  (six  months) 

4.26 
4.30 
4.47  Co) 

*  Exclusive  of  convertible  issues. 
(a)  Covers  first  eight  months. 


86 

Examination  of  the  foregoing  shows  that  the  net  income 
yields  of  all  groups,  except  the  industrial  group,  were  in  the 
first  half  of  1913  higher  than  the  year  1903.  During  the 
panic  years  1907-1908,  the  income  yields  considerably  rose, 
but  in  the  case  of  railroad  and  government  securities  the 
average  yields  for  those  two  years  w^ere  lower  than  at  present. 
This  is  important.  The  depression  in  securities  caused  by 
the  panic  of  1907  lasted  but  a  short  period.  The  fall  in 
prices  began  in  the  autumn  of  1907  and  recovery  was  under 
way  several  months  before  the  end  of  1908.  Thus  the  rise  in 
yield  during  the  period  was  due  to  temporary  conditions  and 
cannot  be  taken  as  a  gauge  of  the  trend  of  investment  values. 
Moreover,  business  depression  leads  investors  to  diminish 
their  purchases  of  speculative  securities  and  to  increase  their 
purchases  of  "  gilt-edged "  investment  bonds.  Since  1909, 
however,  the  depreciation  has  been  confined  mainly  to  those 
classes  of  securities  which  are  generally  termed  "  high  grade," 
and  cannot  be  said  to  be  due  to  mere  general  business  de- 
pression. 

Tlie  extent  of  the  depreciation  in  the  value  of  the  different 
groups  represented  in  the  table  can  be  seen  most  clearly  by 
comparing  the  average  yields,  based  on  market  prices,  of  the 
year  1909  and  six  months  of  1913  : 

Yield 
Per  cent 
1909        1913 

Government  bonds 3.61         3.91 

Public  utility  bonds 4.71         4.90 

Industrial  bonds  _ 5.16  5.35 

Kailroad  bonds 4.08  4.41 

Eastern  railroad  bonds 4.11  4.47 

In  other  words  the  railroads  are  now  compelled  to  pay 
more  for  their  capital  than  at  any  time  within  eleven  years. 
Eailroad  preferred  stocks,  likewise,  have  offered  higher  yield 
than  since  the  year  1908,  and  the  depreciation  in  this  group  of 
securities  has  been  almost  continuous  since  that  time. 


87 

It  must  be  concluded,  therefore,  that 

1. — the  general  interest  rate  has  risen,  and, 

2. — that  securities  offering  the  highest  return  {{.  e.,  the  so- 
called  "  low  grade  "  securities)  have  come  more  into  popular 
favor. 

The  recent  increase  in  the  net  income  rate  on  State  and 
Municipal  bonds  can  be  readily  explained,  A  general  rise  in 
interest  rates  has  caused  the  securities  giving  the  smallest  re- 
turn to  be  exchanged  for  those  affording  a  higher  return,  and 
thus  large  amounts  of  these  securities  have  changed  hands.  As 
the  number  of  buyers  willing  to  purchase  them  at  their  former 
low  income  yield  has  decreased,  they  have  necessarily  been 
offered  at  lower  prices.  Another  potent  cause  of  the  decline  is 
the  immense  increase  in  the  amount  of  these  securities  that 
has  been  put  out  within  the  last  decade,  the  volume  of  these 
issues  being  greater  than  the  market  would  take  at  the  former 
low  rates.  All  this  is  clearly  shown  by  the  following  which 
shows  the  annual  aggregates  of  new  State  and  Municipal  bond 
issues,  with  the  comparative  interest  rates  thereon,  from  1902- 
1912,  inclusive,  exclusive  of  bonds  taken  for  the  sinking  fund 
of  New  York  City,  and  their  distribution  among  different  in- 
terest rates : 


Percentages  o 

:  total  put  out  at  different 

rates  of  interest. 

Amount 
issued 

Year. 

3^"^;  or 

40/ 

4i%and 

5%  and 

Unknown 

less. 

H%- 

higher. 

unusual. 

1902... 

$143,590,868 

58.58 

23.99 

3.01 

8.70 

5.73 

1903... 

152.281,050 

47.38 

31.18 

5.88 

11.97 

3.59 

1904... 

238,929,204 

51.87 

31.30 

5.05 

9.92 

1.86 

1905.. 

183,080,023 

47.24 

30.23 

7.61 

13.24 

1.68 

1906... 

201  743,304 

17.92 

59.55 

7.24 

12.18 

3.11 

1907... 

227,643,208 

7.44 

43.16 

30.36 

15.06 

3.98 

1908... 

313,797,549 

5.91 

39.51 

33  22 

17.73 

3.63 

1909... 

329,358.486 

8.85 

49.08 

14.86 

24.31 

2.90 

1910... 

307,013,386 

6.26 

30.98 

34.97 

25.00 

2.79 

1911... 

395,069,205 

1.69 

32.12 

40.25 

23.90 

2.04 

1912  .. 

383,150,828 

1.25 

26.41 

43.63 

25.98 

2.73 

88 

The  remarkable  features  of  the  foregoing  table  are  : 

(1)  The  almost  uninterrupted  increase  in  new  issues  in  both 
good  and  bad  business  years,  and 

(2)  The  constant  tendency  to  put  out  bonds  at  higher  in- 
terest rates. 

Thus,  in  1911,  the  new  municipal  bonds  amounted  to 
almost  three  times  the  amount  put  out  in  1902,  Only  a  very 
small  part  of  municipal  issues  is  due  to  refunding.  The  great 
bulk  of  them  is  due  to  rapid  development  and  public  improve- 
ments, and  to  the  desire  to  "  boom  "  the  cities  through  large 
outlays.  As  a  result,  "  assessment  values,"  which  are  at  the 
basis  of  municipal  credit,  have  been  greatly  enhanced. 
A.ccording  to  a  United  States  Census  Report  on  the  Financial 
Statistics  of  Cities  for  1911,  the  indebtedness  of  184  cities 
having  a  population  of  30,000  or  more  at  the  close  of  the 
fiscal  year  1911,  amounted  to  $2,618,107,501,  representing  an 
increase  of  8%  over  the  previous  year.  In  the  words  of 
the  Report : 

"  The  figures  show  that,  taken  as  a  whole,  the  cities 
are  increasing  their  costs  of  government  (including  out- 
lays) faster  than  their  revenues,  and  as  a  result  are  in- 
creasing their  indebtedness  even  faster." 

In  order  to  find  a  market  for  the  avalanche  of  new  muni- 
cipal obligations  it  has  been  necessary  to  offer  higher  returns. 

An  indication  of  the  growing  popularity  of  public  utility 
and  industrial  bonds  is  found  in  the  following  table  of  invest- 
ment bond  holdings  by  all  classes  of  banks  as  reported  by  the 
Comptroller  of  the  Currency. 


89 


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90 

It  can  be  seen  that  in  the  five  years  covered  by  the  above 
table  the  amount  of  railroad  bonds  actually  decreased,  and  the 
percentage  held  to  total  investments  declined  from  33.8  per 
cent  to  28.3  per  cent.  On  the  other  hand,  other  public  service 
bonds  increased  from  10.1  per  cent  to  13.4  per  cent  which 
represents  an  increase  from  $466,500,000  to  $721,300,000,  a 
gain  of  about  54  per   cent. 

Quoting  from  a  statement  given  to  the  press  recently  (New 
York  Times,  Dec.  15,  1913)  by  the  New  York  State  Superin- 
tendent of  Banks : 

"  A  change  in  income  basis  has  resulted  in  the 
heavy  depreciation  in  valuation  of  investment  secur- 
ities. Short-term  bonds,  notes,  and  equipment  obliga- 
tions are  preferred  to  long-term  bonds  because  of  the 
income  return  and  the  small  prospect  of  depreciation. 
The  development  of  public  utility,  power,  and  electri- 
cal enterprises  has  brought  another  class  of  investments 
into  prominence,  which  are  made  atttractive  through 
favorable  rates  of  interest  offered." 

The  general  conclusion  from  the  foregoing  is  that  railroad 
securities  have  lost  a  great  deal  of  their  former  position  as  the 
most  popular  class  of  investment  securities,  occupying  a  place 
between  government  obligations  (selling  at  a  very  low  income 
yield),  and  public  utility  or  industrial  securities  (offering  a 
high  income  yield,  but  considered  less  desirable  for  conserva- 
tive investment).  This  has  contributed  to  (a)  the  pronounced 
fall  in  the  prices  of  outstanding  standard  railroad  securities 
and  (6)  greater  difficulty  in  procuring  new  railroad  capital. 

Thus  it  is  to  be  observed  that  American  governments  have 
not  only  increased  the  amounts  exacted  from  the  railways  by 
taxation,  laid  severe  and  costly  operating  burdens  upon  railway 
managements,  and  limited  the  charges  permitted  for  the  ser- 
vices rendered,  but,  in  addition,  have  made  heavy  demands 
upon  the  available  investment  fund  and  bid  against  the  rail- 
ways for  capital  which  is  indispensable  to  the  latter  if  they  are 


91 

satisfactorily  to  perform  their  public  functions.  Most  of  these 
governmental  borrowings  are  for  unproductive  purposes  and 
become  in  themselves  the  cause  of  augmented  taxation.  It  is 
submitted  that  this  progressive  impairment  of  the  opportunities 
for  successful  railway  financing  cannot  continue  without  grave 
public  detriment. 

Railroad  Securities  No"w  in  Default. 

A  pressing  feature  of  the  immediate  situation  is,  that 
already  a  large  volume  of  railway  bonds  is  in  default  on 
account  of  failure  of  the  companies  represented  to  earn 
enough  to  pay  the  interest  agreed  upon.  These  securities 
are  not  now  drawing  interest  for  their  owners,  and  in  many  in- 
stances such  interest  will  never  be  paid — in  some  even  the 
principal  will  be  reduced.  An  incomplete  list  of  these  secur- 
ities with  the  date  on  which  the  default  began  and  the  amount 
of  each  issue  follows  : 


Railway. 


First  5s. 


Alabama  Terminal 

Atlanta,  Birmingliara  & 
Atlantic , 

Chicago  &  Eastern  Illi- 
nois   

Chicago  &  Eastern  Illi- 
nois   

Chicago  &  Indiana  Coal 

Chicago  &  West  Michi- 
gan   

Chicago,  Peoria  &  St. 
Louis 

Chicago,  Rock  Island 
&  Pacific 

Cincinnati,  Hamilton  & 
Dayton 

Cincinnati,  Indianapo- 
lis &  Western 

Colorado  Midland 

Denver,  Rio  Grande  & 
Western 

Evansville  &  Indianap- 
olis   

Evansville  &  Indianap- 
olis  First  6s 


Issue. 


First  5s 


First  5s 

Stock  Trust  Certifl 
cates  4s , 

Refunding  &  Im- 
provement 4s  .  . 

5s 


Prior  Lien  4^s 


Collateral  4s ... 

First  and  Refund- 
ing 4s 

First  and  Refund- 
ing 4s 

First  4s  

First  Consolidated 
4s 

First  Consolidated 
6s 


Amount. 


Default  began. 


$2,445,000 

14,443,000 

23,876,900 

18,019,000 
4,626,000 

5,758,000 

2,000,000 

71,353,500 

1,677,000 

4,722,000 


1909 

1909 

1913 

1914 
1914 

1914 

1914 

1914 

1914 

1914 


January  1 

January  1 

July  1 

July  1 
July  1 

June  1 

Sept.  1 

May  1 

July  1 


July  1 
9,532,000il913  January  1 


5,379,000 

1,853,000 

647.000 


1914 
1914 
1914 


April  1 
Julyl 
July  1 


92 


Railway. 


Flint  &  Pere  Marquette 


Georgia  Terminal  . ... 
Indianapolis,     Decatur 

&  Western 

International  &    Great 

Northern  

Kansas    City  &  Mem 

phis 

Kansas,    Oklahoma    & 

Western 

Missouri,  Oklahoma  & 

Gulf 

Missouri,  Oklahoma  & 

Gulf  

Missouri,  Oklahoma  & 

Gulf 

Missouri,  Oklahoma  & 

Gulf 

New  Orleans,  Mobile  & 

Chicago 

New  Orleans,  Texas  & 

Mexico 

Oklahoma  Central. ... 
Pere  Marquette , 


Pittsburg,  Shawmut  & 
Northern 

Pittsburg,  Shawmut  & 
Northern.  

Port  Huron 


St.  Louis  &  San  Fran- 
cisco   

St.  Louis  &  San  Fran- 
cisco   

St.  Louis  &  San  Fran 
Cisco 

St.  Louis  &  San  Fran- 
cisco  

San  Antonio,  Uvalde  & 
Gulf 

Toledo,    St.    Louis    & 
Western 

Wabash 


Issue. 


First  4s  and  6s.. 
Consolidated  5s. 
First  5s 


Amount. 


First  5s 

Notes,  5%. 
First  5s 


First  6s. 


First  Railroad  5s... 
First  Railway  58  .. 
Second  5s 


Terminal  5s 

First    and  refund- 
ing 5s 


First  5s 

First  5s 

Refunding  4s 

Consolidated  4s  — 

Improvement    and 

Refunding  5s.... 

Debenture  6s 

Refunding  4s 


First  5s 

First  5s 

Miscellaneous... 

General  Lieu  5s 

Refunding  4s.... 

Notes  6% 

"      5"-^ 


Wabash-  Pittsburgh 
Terminal 

Wabash-  Pittsburgh 
Terminal 

Wheeling  &  Lake  Erie . 

Total 


First  5s 

Consolidated  4s  A 

and  B 

First       Refunding 

and  Extension  4s 
Notes    5% 


First  4s. 


Second  4s. 
Notes  5%., 


Default  began. 


5,000,000  1914  April  1 


2,850,000 
3,000,000 

$3,163,000 

11,000,000 

496,000 

800,000 

10,655,200 

7,007,000 

1,467,000 

550,000 

11,819,000 

28,593.300 
3,000.000 

10,106,000 
8,382,000 

16,000,000 
5,000,000 

14.491,600 

169,000 
3,325,000 
3,491,000 

69,534,216 

68,562,000 

2,600,000 

2,250,000 

2,863,000 

11,537,000 

41,931,240 
5,000,000 


1914  May  1 
1909  January  1 

1914  July  1 


1914  May  1 
1914  July  1 
1913  November  1 
1913  November  1 
1913  November  1 
1913  November  1 
1913  July  1 

1913  September  1 
1908  June  1 
1912  January  1 

1914  January  1 

1914  March  1 

1912  January  1 

1905  August  1 

1905  August  1 
1914  April  1 

1914  May  1 
1914  July  1 

1913  September  1 

1913  June  1 

1914  August  1 
1914  August  1 


1912  January  1 

1913  May  1 


30,236,000  1908  June  1 
20,000,000  1910  June  1 


8.000,000 


$578,677,956 


1908  August  I 


93 
SECTION  B. 

Additional    Considerations    Made    Necessary    by    the 
European  War. 

So  far,  this  paper  has  proceeded  without  reference  to  the 
World-wide  significance  of  the  catastrophic  combat  in  which 
nearly  the  whole  of  Europe  became  involved  during  the  clos- 
ing days  of  July  and  the  early  days  of  August.  Whether  this 
Titanic  conflict  proves  of  long  duration,  as  many  now  expect, 
or  peace  is  soon  restored,  as  all  who  are  able  to  view  the  situa- 
tion with  impartiality  must  earnestly  desire,  there  can  be  no 
doubt  that  for  at  least  a  decade  to  come  the  influences  set  in 
motion  by  this  war  will  profoundly  affect  the  financing  of  all 
large  enterprises.  Indeed,  the  effect  upon  American  railways, 
which  has  already  commenced,  will  have  two  marked  and  dis- 
tinct but  related  and  interacting  phases.  One  of  these  phases 
is  the  diminution  of  traffic  by  reason  of  the  diminished  pur- 
chasing power  both  at  home  and  abroad  ;  the  other  the  in- 
creased cost  of  obtaining  capital  or  of  contracting  for  the  con- 
tinued use  of  capital  when  the  contracts  under  which  it  has 
been  used  expire,  which  will  result  partly  from  the  diminished 
earning  power  due  to  the  reduced  volume  of  trafiic  but,  in  a 
greater  degree,  from  the  enhanced  pressure  upon  the  World's 
depleted  supply  of  capital.  These  phases  should  receive 
separate  discussion. 

Diminished   Traffic. 

The  diminution  of  traffic  has  already  begun,  as  shown  by 
the  reports  for  August  which  are  now  coming  in.  These, 
however,  will  show  the  commencement  only  of  a  process 
which  will,  for  many  months,  continue  to  increase  in  intensity. 

In  the  recent  Advanced  Rate  case,  decided  on  July  29, 
1914,  the  Interstate  Commerce  Commission  declared  that,  con- 
sidered altogether,  the  corporate  income  of  the  railways  in 
Official  Classification  territory  (that  is  to  say,  east  of  Chicago 
and  the  Mississippi   river  and  north  of  the  Ohio  and  Potomac 


94 

rivers)  is  lower  than  the  general  public  welfare  permits.     The 
Commission,  speaking  by  its  Chairman,  said  : — 

"  In  view  of  a  tendency  towards  a  diminishing  net 
operating  income  as  shown  by  the  facts  described  we 
are  of  the  opinion  that  the  net  operating  income  of  the 
railroads  in  Official  Classification  territory,  taken  as  a 
whole,  is  smaller  than  is  demanded  in  the  interest  of 
both  the  general  public  and  the  railroads  ;  and  it  is  our 
duty  and  our  purpose  to  aid,  so  far  as  we  legally  may, 
in  the  solution  of  the  problem  as  to  the  course  that  the 
carriers  may  pursue  to  meet  the  situation."  (p.  31, 
I.  a  C.  Rep.  351,  381J 

The  foregoing  declaration  applies,  of  course,  to  the  situa- 
tion of  the  railways  when  they  enjoyed  a  traffic  movement 
undiminished  by  the  reaction  of  the  European  war  upon 
American  industry.  Now  that  the  war  has  come  it  is  not  to 
be  doubted  that  one  of  its  earliest  reactions  in  this  country 
will  be  a  diminution  of  not  less  than  twenty  per  cent  in  the 
volume  of  the  business  done  by  the  railways.  Tliis  diminu- 
tion has  already  begun  and  it  will  be  progressive  until  the  maxi- 
mum effect  upon  the  interchange  of  commodities  of  depleted 
foreign  commerce,  and  the  inability  to  finance  new  business  un- 
dertakings or  the  enlargement  of  enterprises  already  in  exist- 
ence, is  accomplished.*    When  that  point  is  attained  an  upward 


*  It  certainly  cannot  be  thought  that  the  consequences,  in  this  respect,  of 
the  great  war  now  in  progress  will  be  less  than  those  of  the  panic  of  1893. 
The  year  following  that  panic  total  freight  movement,  measured  in  ton-miles, 
decreased  14.16  per  cent  and,  although  the  World's  Columbian  Exposition 
at  Chicago  served  to  keep  the  aggregate  passenger  movement  about  at  the 
level  of  the  previous  year  (this  was  not  accomplished  without  a  great  sacri- 
fice in  rates,  the  influence  of  the  low  excursion  rates  being  shown  by  a  reduc- 
tion in  the  average  gross  receipts  per  passenger  per  mile  from  2.108  cents  in 
the  fiscal  year  1893  to  1.986  cents  in  1894),  the  gross  receipts  from  operation 
fell  off  12.07  per  cent.  In  the  fiscal  year  1895  the  freight  movement  was  8.93 
per  cent  lower  than  in  1893  and  the  passenger  movement  14.34  per  cent 
lower.  It  was  not  until  the  fiscal  year  1896  that  the  freight  movement  equalled 
that  of  1893  (and  then  only  at  an  average  per  ton  per  mile  of  8.06  mills  or 
nine  per  cent  less  than  the  average  of  8.78  mills  that  prevailed  in  1893)  ;  the 
passenger  movement  of  1893  was  not  equalled  (except  as  noted  in  1894)  until 
the  fiscal  year  1899,  and  the  gross  receipts  of  1893  were  not  equalled  until  1898. 


95 

movement  may  be  expected  to  begin  but,  in  its  first  stages,  that 
movement  is  sure  to  be  sluggish  and  faltering. 

The  railways  are  notoriously  unable  to  curtail  their  ex- 
penses in  correspondence  with  reductions  in  the  volume  of 
trafiic.  The  capital  which  they  employ  is  fixed  capital,  in  the 
sense  that  it  is  in  such  form  that  its  diversion  to  other  uses  is 
not  possible.  Hence  that  portion  of  the  cost  of  doing  business 
which  consists  of  fixed  charges,  that  is  to  say,  of  interest  on  the 
capital  employed,  does  not  diminish  at  all  with  reductions  in 
the  amount  of  business  done.  Furthermore,  a  railway  plant 
that  has  been  developed  to  a  capacity  required  to  meet  a  cer- 
tain maximum  of  traflSc  movement  must  be  maintained  in  its 
full  capacity  during  any  diminution  of  traffic,  and  it  is  only  in 
so  far  as  maintenance  expenses  are  directly  caused  by  the 
movement  of  cars  and  locomotives  and  proportioned  to  the 
number  and  extent  of  such  movements  that  maintenance  ex- 
penses are  diminished  in  consequence  of  decreased  traffic 
movement.  Even  train  movements  do  not  decrease  in  propor- 
tion to  decreased  traffic  for  experience  has  shown  that  a  dimi- 
nution in  the  volume  of  services  rendered,  both  in  passenger 
and  freight  traffic,  is  invariably  accompanied  by  a  reduction  in 
the  average  train  loads.* 

Prof.  William  Z.  Ripley  of  Harvard  University,  has  made 
an  exhaustive  study  of  railway  expenses  in  an  eff'ort  to  dis- 
cover how  far  they  are  subject  to  variations  corresponding 
with  such  variations  in  traffic  movement  as  the  reduction  now 
in  sight,  and  has  concluded  that  less  than  one-third  (32.5  per 
cent)  are  so  variable.  The  results  of  his  inquiries  are  pre- 
sented in  the  following  extracts  from  his  book  entitled 
"  Railroads  :  Rates  and  Regulation  "  {pp.  45-65). 

"  The   primary    distinction  in  railroad  expenses   is 
between  those  which  are  constant  and  independent  of 

*  In  the  fiscal  year  1894,  with  the  fallin<T  off  of  14.16  per  cent  in  freight 
movement  as  compared  with  1893,  the  average  train  load  fell  to  179.80  from 
183.97  tons  in  1893,  and  the  freight  train  mileage  was  reduced  only  13.17  per 
cent.  Similarly,  between  1893  and  1895,  with  a  reduction  in  passenger  traflSc 
of  14.34  per  cent,  passenger  train  mileage  was  reduced  only  5.38  per  cent. 


96 

the  volume  of  traffic,  and  those  which  vary  more  or  less 
directly  in  proportion  to  it.  Thus,  of  the  total  outlay, 
it  may  at  once  be  premised  that,  for  a  time  at  least, 
certain  capital  expenditures  are  entirely  unrelated  to 
the  volume  of  business  transported.  Interest  on  bonded 
indebtedness  is  neither  increased  nor  diminished,  up  to 
a  certain  point,  by  the  number  of  tons  of  freight 
moved ;  whereas,  on  the  other  hand,  other  items  of  ex- 
penditure, such  as  wages  of  train-hands  and  fuel  cost, 
are  more  or  less  directly  affected.  The  distinction 
above  mentioned  finds  its  clearest  expression  in  the 
primary  division  of  railroad  accounts  into  so-called 
operating  expenses,  which  are  variable ;  and  "  fixed 
charges,"  which,  as  the  name  implies,  are  constant. 
Much  of  the  direct  wear  and  tear  of  equipment 
belongs  to  the  first  class,  while,  as  we  have  said, 
interest  on  its  own  funded  or  floating  debt, 
together  with  capital  obligations  on  leased  lines, 
naturally  fall  into  the  second  group.  This  second 
class  of  constant  expenses,  which  along  with  taxes 
is  often  denominated  in  railway  reports  "  Deductions 
from  Income",  is  a  relatively  large  one.  Thus,  in 
1910,  out  of  a  total  expenditure  by  all  the  operat- 
ing railroads  of  the  United  States  of  $1,822,000,000 
no  less  than  $490,000,000,  or  about  twenty-seven  per 
cent.,  consisted  of  interest  on  debt  and  taxes.  This  pro- 
portion of  absolutely  fixed  expenditures,  moreover, 
shows   a   remarkable   constancy   throughout  a  series  of 

years " 

"  Under  the  first  category,  maintenance  of  way  and 
structures,  absorbing  about  one-fifth  of  operating 
expenses,  over  one-half  is  incurred  for  so-called  '  repairs 
of  roadway '.  It  is  evident  that  a  large  part  of  this 
expense  is  due  not  to  wear,  but  to  weather.  A  costly 
plant  is  exposed  to  every  vicissitude  of  flood,  fire,  and 
waste.  Re-ballasting  and  re-alignment  may  be  some- 
what more  expensive  where  traffic  is  heavy,  but  certainly 
all  general  repairs,  the  wages  of  track  walkers,  removal 
of  snow,  ice,  and  weeds,  must  be  attended  to  entirely 
irrespective  of  the  number  or  size  of  passing  trains.  Of 
the   second   item,  renewals  of   rails,  it  is  probable  that 


97 

this  expenditure  is  directly  traceable  to  wear  and  tear 
in  large  part.  The  more  trains,  the  heavier  the  loco- 
motive and  cars  or  the  higher  the  speed,  the  more 
rapidly  must  these  rails  be  replaced.  But  even  so,  the 
proportionate  amount  is  small,  constituting  gener- 
ally between  five  and  ten  per  cent,  only  of 
the  group  expenditure  for  maintenance  of  way. 
With  ties,  an  item  about  twice  as  important 
as  rails,  the  case  is  exactly  the  reverse.  Ties 
rot  out  rather  than  wear  out.  They  have  a  natural  life 
varying  from  four  to  fourteen  years,  as  influenced  by 
climate,  ballast,  and  drainage.  The  necessary  expendi- 
ture per  mile  for  them  by  different  roads  varies  greatly, 
as  might  be  expected  ;  but  it  seems  to  bear  little  rela- 
tion to  the  density  of  trafiic.  As  for  the  principal  re- 
maining items  under  Maintenance  of  Way,  such  as  re- 
pairs of  bridges  and  buildings ;  if  properly  designed  to 
withstand  their  loads  and  strains,  most  expenses  of 
their  upkeep  such  as  repainting  and  reroofing  should 
be  practically  independent  of  the  volume  of  business. 
A  recent  elaborate  discussion  of  these  matters  in  1907 
in  the  Wisconsin  Two-Cent  Fare  decision,  reached  the 
conclusion  that  all  of  the  cost  of  rails,  one-third  of  the 
ties  and  ten  per  cent,  of  expenditures  for  roadway, 
track  and  bridges,  are  all  that  can  properly  be  charged 
to  wear  from  trafiic,  as  opposed  to  natural  depreciation. 
Acworth  illustrates  this  point  by  comparison  of  the 
Midland  &  Great  Western  Railway  of  Ireland  and  the 
Lancashire  &  Yorkshire  Railroad.  These  two  are  of 
about  equal  length,  approximately  530  miles.  The 
latter  carries  forty  times  the  traffic  of  the  former  road, 
and  yet  its  expenses  for  maintenance  of  way  are  only 
eight  times  as  much.  It  seems  safe,  in  general,  to 
conclude  that  in  this  first  large  group  of  expenditures 
for  maintenance  of  the  fixed  plant,  probably  not  over 
one-third  are  variable  to  any  considerable  degree. 
Acworth  for  England  estimates  this  proportion  at  about 
two-fifths." 

"  The  proportion  of  variable  expenditures  for  Main- 
tenance of  Equipment — the  second  group — is  probably 
higher  than  in  that   of   maintenance   of   way.     This   is 


98 

due  to  two  causes.  Rolling  stock  is,  of  course,  sub- 
jected more  directly  to  wear  aud  tear  in  service  than 
are  bridges,  cuts  and  fills  and  buildings.  Rolling 
stock,  moreover,  is  susceptible  to  change  of  type  and 
improvement.  Its  effective  life  is  thus  shortened  both 
by  use  and  by  replacement.  Before  being  worn  out 
it  may  have  become  antiquated.  More  powerful  loco- 
motives and  larger  cars  suited  to  new  requirements  of 
the  business  may  necessitate  scrapping  otherwise  good 
equipment.  This  very  fact,  however,  imposes  upon  the 
management  the  need  of  intensive  service  while  it  lasts. 
All  the  mileage  possible  must  be  extracted  from  each 
vehicle  before  it  goes  out  of  date,  and  this  implies  a 
higher  proportion  of  wear-out  than  of  mere  rust-out. 
Yet  the  fact  is  still  true  that  many  of  the  items  in  this 
class  are  unaffected  by  the  mileage  or  tonnage  per- 
formance. There  is  little  difference  in  wear  on  a 
freight  car  as  between  light  and  moderately  heavy 
loads ;  and  as  for  passenger  cars,  the  actual  wear 
assignable  to  the  paying  load  is  a  negligible  quantity. 
We  may,  at  all  events,  risk  an  estimate  in  the  state- 
ment that  probably  not  over  half  of  all  the  expenditures 
of  a  railroad  for  maintenance  of  equipment  vary  with 
the  volume  of  the  business." 

"  The  direct  effect  of  a  changing  volume  of  business 
is  most  clearly  seen  in  the  third  group  of  operating  ex- 
penses, having  to  do  with  Conducting  Transportation. 
This  is  very  important,  comprising  *  *  *  no  less 
than  fifty-five  per  cent  of  operating  outlay  and  forty 
per  cent  of  total  expenditures  including  fixed  charges. 
At  first  glance  it  would  appear  as  if,  at  last,  one  had 
here  to  do  with  a  direct  relativity  between  cost  and 
volume  of  business.  Surely  the  cost  of  fuel  for  motive 
power  will  vary  with  the  tonnage  moved.  This  item, 
amounting  iu  1905  to  no  less  than  $156,000,000  for  the 
railroads  of  the  United  States,  was  the  largest  in  the 
budget,  constituting  eleven  per  cent,  of  all  operating  ex- 
penses. Yet  brief  consideration  shows  that  even  here 
much  of  this  expense  is  constant  and  invariable.  A 
locomotive  will  burn  fully  one-third  as  much  coal  merely 
to  move  its  own  weight  as  to  haul  a  loaded  train.     Five 


99 

to  ten  per  cent  of  its  total  daily  consumption  is  required 
merely  for  firing  up  to  the  steaming  point.  Twenty-five 
to  fifty  pounds  of  coal  per  hour  go  to  waste  in  holding 
steam  pressure  while  a  freight  train  is  waiting  on  a 
siding.  Every  stop  of  a  train  going  thirty  miles  per 
hour  dissipates  energy  enough  to  have  carried  it  two 
miles  along  a  level  road.  In  brief,  expert  evidence  shows 
that  of  this  important  expenditure  for  coal,  from  thirty 
to  fifty  per  cent  is  entirely  independent  of  the  number 
of  cars  or  the  amount  of  freight  hauled.  The  largest 
wage  items  in  this  group  of  conducting  transportation 
expenses  are  for  engine  and  roundhouse  men,  and  con- 
ductors and  brakemen.  This  expense  is,  of  course, 
even  more  independent  of  the  volume  of  business  tlian 
the  cost  of  coal.  No  more  engine  men  or  conductors 
are  needed  for  a  heavy  through  express  or  freight  train 
than  for  a  single  car  train  on  a  branch  line.  And  the 
extra  cost  for  service  of  more  brakemen  as  the  size  of 
the  train  increases,  is  relatively  unimportant  when 
modern  equipment  with  air  brakes  is  used.  Apprecia- 
tion of  this  fact  is  largely  responsible  for  the  great  in- 
crease in  train  loads  in  recent  years.  Train-mile  costs 
can  be  economized  most  effectively  by  distributing  the 
wages  of  a  train  crew  over  as  large  a  tonnage  as  pos- 
sible of  paying  freight.  As  for  the  wages  of  station 
men,  switch  and  flag  men,  they  are  largely,  and  often 
entirely,  independent  of  the  amount  of  business.  From 
all  these  considerations  it  appears  that  at  a  conservative 
estimate,  no  less  than  fifty  per  cent  of  the  cost  of  con- 
ducting transportation  constitutes  a  fixed  charge  upon 
the  property  once  it  is  in  operation,  irrespective  of  the 
volume  of  business  transacted." 

"  The  group  of  general  expenses,  which  alone  remains 
for  analysis,  is  relatively  small  in  amount.  It  is  obvious 
that  these  outlays  are  a  constant  burden  but  slightly  in- 
fluenced by  the  variation  in  traffic.  Salaries  may  indeed 
be  reduced  somewhat  during  hard  times — a  few  clerks 
may  be  laid  off  ;  but  on  the  other  hand,  this  being  an 
expense  of  organization,  the  general  staff  must  be  main- 
tained at  about  a  certain  standard  of  efficiency  regard- 
less of  business." 


100 


"  Summarizinp;  our  estimates  thus  far,  we  may  recon- 
struct a  table,  distributing  expeuditures  tlieoretically 
according  as  they  are  constant  or  variable  in  somewhat 
the  following  way  : 


Per  cent  of 
operating    expenses 

Per  cent  of 
total  expenses 

Both 

Con- 
stant 

Vari- 
able 

Both 

Con- 
stant 

Vari- 
able 

Maintenance  of  way 

Maintenance  of  equipment. 
Conducting  transportation. 
General  expenses 

20 

20 

56 

4 

13.4 
10 

28 
4 

6.6 
10 

28 

44.6 

15 

15 

40 

3 

27 

10 

7.5 
20 

3 

27 

5 

7.5 
20 

Fixed  cliarges 

100 

55.4 

100 

67.5 

32.5 

Thus  one  arrives  at  the  general  conclusion  that  ap- 
proximately two-thirds  of  the  total  expenditure  of  a 
railroad  and  more  than  one-half  of  the  actual  operating 
expenses  are  independent  of  the  volume  of  traffic.  The 
remaining  third  of  all  expenditures,  or  what  amounts  to 
the  same  thing,  the  other  half  of  the  operating  expenses, 
are  immediately  responsive  to  any  variation  in  busi- 
ness. Applied  to  the  railroad  net  of  the  United  States, 
this  means  that  only  about  one-third  of  the  $2,000,- 
000,000  disbursed  in  1905 — an  amount  equal  to  about 
two  and  one-half  times  the  national  debt — was  sus- 
ceptible of  variation  according  as  the  traffic  expanded 
or  decreased.  This  provisional  estimate,  defective 
principally  because  of  inadequacy  of  tbe  returns  as  to 
depreciation  and  replacement,  agrees  in  the  main  with 
computations  based  upon  other  data.  The  Vice- 
President  of  the  Southern  Pacific  Railroad,  in  1892, 
after  extended  investigation,  arrived  at  precisely  the 
same  general  conclusion." 

Assuming  Professor  Ripley's  estimates  to  be  accurate,  they 
may  be  applied  to  the  facts  for  the  fiscal  year  1911,  as  stated 


101 

in  the  latest  report  on  railway  statistics  published  bj  the  In- 
terstate Commerce  Commission,  in  such  a  way  as  to  disclose  the 
effect  that  a  reduction  in  gross  receipts,  due  to  a  diminution 
of  twenty  per  cent  in  the  traffic  movement  of  that  year,  and  at 
the  same  rates,  would  have.  The  expenses  of  1911  covered  by 
Professor  Eipley's  estimates  amounted  to  $2,473,747,339  as 
follows  :  operating  expenses  $1,976,331,864,  taxes  $108,309,512, 
net  deductions  from  income  $389,105,963  (deductions  from 
income  $466,921,308,  less  other  income  $77,815,345).  If  67.5 
per  cent  of  these  expenses  remained  stationary  and  32.5  were 
reduced  twenty  per  cent  (in  the  same  proportion  as  the  reduc- 
tion in  traffic)  the  total  outlay,  under  the  new  conditions  would 
be  $2,312,953,762.  But  with  twenty  per  cent  less  traffic,  at  the 
same  rates,  the  gross  receipts  from  operation  would  be  $2,282,- 
283,777  or  eighty  per  cent  of  $2,852,854,72] ,  the  gross  receipts 
of  1911.  That  is,  with  a  reduction  of  twenty  per  cent  in 
traffic  movement,  and  assuming  the  accuracy  of  Professor 
Ripley's  estimates,  the  reduction  of  expenses  would  be  so 
much  less  than  the  reduction  in  receipts  that  there  would  not 
be  sufficient  funds  to  pay  necessary  interest  to  say  nothing  of 
dividends  on  stock.  The  table  following  shows  the  actual 
figures  of  1911  and  the  results,  on  the  basis  indicated,  of  (first) 
a  twenty  per  cent  reduction  and  (second)  a  ten  per  cent  reduc- 
tion in  traffic  movement. 


Item 

1911 

Twenty  per  cent 

reduction  in 
traffic  movement. 

Ten  per  cent 
reduction  in 
traffic  move- 
ment. 

Gross  receipts  for    opera- 
tion  

$2,852,854,721 
2,473,747,339 

$2,282,283,777 
2,312,953,762 

$2,567,569,249 
2,393,350,551 

E.\penses,  including  oper- 
ating    expenses,     taxes 
and  deductions  froni  in- 
come, but  not  including 
dividends    on    stock    or 
surplus 

Balance,  available  for  divi- 
dends, surplus,  etc 

$379,107,382 

$30,669,985^ 

$174,218,698 

Deficit. 


102 

While  it  is  not  alleged  that  the  exact  results  shown  above 
would  follow  should  there  be  no  correction  of  the  rates  of 
charge  in  consonance  with  the  new  necessities  of  the  situa- 
tion, it  is  submitted  that  the  estimates  are  sufficiently  near 
the  probabilities  to  constitute  a  warning  that  may  not  be 
overlooked  with  safety.  It  is  perfectly  apparent  that  the  im- 
minent reduction  in  traffic  ought  not  to  be  permitted  to  result 
in  a  proportionate  reduction  in  gross  receipts.  The  only  way 
to  obviate  that  public  misfortune  is  to  permit  an  immediate 
adjustment  of  rates  upon  an  higher  level. 

DiflELculties  and  Excessive  Cost  of  Financing. 

The  immediate  effects  upon  the  financial  markets  of  the 
world  at  the  commencement  of  the  present  war  were  too  pro- 
found and  are  still  too  recent  to  require  even  recapitulation. 
It  is  sufficient  to  note  that  an  instantaneous  result  was  the  com- 
plete paralysis  of  that  elaborate  system  of  world  exchanges  whose 
delicate  adjustments  and  high  efficiency  were  the  product  of 
generations  of  international  commerce  and  the  marvel  of  those 
capable  of  comprehending  the  inherent  obstacles  which  had 
to  be  surmounted.  Another  consequence  that  had  begun  to  find 
vigorous  expression  was  interrupted  when,  on  July  31, 1914,  the 
doors  of  the  New  York  Stock  Exchange  failed  to  open,  having 
been  closed  in  order  to  interfere  with  the  re-sale  to  this  country 
of  a  large  portion  of  the  six  billions  of  dollars  in  American 
securities  which,  according  to  the  estimate  of  Sir  George  Paish, 
Editor  of  The  Statist,  of  London,  are  owned  in  Europe.  The 
New  York  Stock  Exchange  has  already  remained  closed  for  a 
longer  period  than  at  any  other  time  in  its  history,  yet  there 
is  no  anticipation  that  it  will  soon  be  opened.  No  doubt  this 
expedient  saved  the  country  from  a  sudden  and  tremendous 
panic  but  so  far  as  concerns  the  obligation  to  repurchase  a  sub- 
stantial part  of  the  American  securities  formerly  sold  abroad, 
it  merely  retarded  and  postponed  a  process  that  is  quite  in- 
evitable.    In  a  well-considered  article  in  the  American  Re 


103 

view  of  Reviews  for  September,  1914,  Mr,  Charles  A.  Conant, 
former  Treasurer  of  The  Morton  Trust  Company,  said — 

"  Perhaps  the  most  serious  feature  of  the  war  panic 
abroad,  in  its  efifect  on  American  finance,  is  the  sending 
back  of  American  securities  held  in  Europe,  to  be  un- 
loaded on  the  New  York  Stock  Exchange  at  any  price  for 
cash.  For  many  years,  a  portion  of  European  savings 
has  been  applied  to  investments  in  the  United  States, 
until  the  amount  thus  invested  has  reached,  according 
to  the  computations  of  Sir  George  Paish,  Editor  of  the 
London  Statist,  no  less  a  sum  than  $6,000,000,000.  In 
Canada  also,  it  is  estimated  that  foreign  capital  is 
invested  to  the  amount  of  more  than  $3,000,000,000. 
The  amount  invested  in  the  United  States,  which  is 
principally  in  the  form  of  securities,  represents  nearly 
the  entire  value  of  the  annual  production  of  the 
country,  and  more  than  half  the  aggregate  assets  of  the 
national  banks. 

"  Securities  issued  for  railway-building  and  indus- 
trial enterprises  represent  fixed  capital  which  is  the 
result  of  the  savings  of  years  and  in  modern  times  has 
come  to  exceed  many  times  the  amount  of  annual  pro- 
duction. Obviously,  it  would  be  impossible  for  the 
United  States  to  buy  back,  even  at  low  prices,  the  en- 
tire mass  of  American  securities,  which  have  been 
placed  abroad.  The  problem,  fortunately,  cannot  pre- 
sent itself  in  quite  so  crude  and  appalling  a  form,  but 
the  necessity  of  taking  back  even  one-fifth  or  one-tenth 
of  this  huge  mass  of  obligations  would  be  sufiQcient  to 
cause  derangement  in  the  money  market  and  serious 
declines  in  stock  exchange  prices." 

Yet  it  is  precisely  this  task  to  the  accomplishment  of 
which,  with  the  least  possible  injury  to  domestic  conditions, 
America  must  a.ljust  her  energies  and  resources.  There  is  no 
alternative.  Tlie  governments  engaged  in  the  war  are  spend- 
ing, in  the  maintenance  and  operation  of  their  military  and 
naval  forces,  not  less  than  $50,000,000.  per  day,  according  to 
the  best  estimates,  which  is  at  the  rate  of  $18,250,000,000  per 


104 

year.  In  addition,  on  the  high  seas,  in  the  harbors  of  bellig- 
erents, on  and  adjacent  to  every  actual  or  potential  conflict  of 
arms,  along  and  adjacent  to  every  route  of  advance  or  retreat, 
there  is  in  process  a  destruction  of  property  which  has  repre- 
sented the  accumulation  of  generations,  even  of  centuries,  of 
toil  and  frugality.  Whether  the  war  is  short  or  long,  in  lesser 
or  in  greater  degree,  the  nations  in  conflict  will  emerge  from 
it  with  vast  accumulations  of  debt,  with  much  wealth  de- 
stroyed that  must  be  restored,  with  vast  rents  in  every  in- 
dustrial fabric.  And  then  the  slow  process  of  upbuilding 
must  commence.  Its  first  step  must  be  the  funding  of  the 
current  indebtedness  accumulated  during  the  war,  its  next  the 
raising  of  funds  necessary  to  the  rehabilitation  of  industry. 
When  it  is  remembered  that  the  relatively  insignificant  Boer 
war  made  it  necessary  for  Great  Britain,  in  addition  to  the 
imposition  of  new  and  increased  taxes,  to  issue  $1,000,000,000 
of  additional  consols,  which  were  then  selling  only  a  little 
below  par,  some  faint  suggestion  of  the  magnitude  of  the  im- 
pending financing  may  be  gained.  Some  idea  of  the  sources 
from  which  these  necessities  for  capital  must  be  satisfied  may 
also  be  derived  from  the  fact  that  the  Japanese  war  loan  of 
1905,  amounting  to  $425,000,000  was  raised  by  placing  $141,- 
500,000  in  New  York,  $157,500,000  in  London,  $66,000,000  in 
Berlin  and  $60,000,000  in  Paris. 

Combined  with  the  inevitable  tendency  towards  private 
hoarding,  all  this  means  that  not  only  during  the  war  but  for  a 
long  time  thereafter  it  will  be  exceedingly  difficult  to  obtain 
capital  for  any  purpose  other  than  the  absorption  of  the  im- 
mense flood  of  government  securities  that  will  be  placed  on  the 
market.  That  the  pressure  upon  available  capital  has  not  been 
overestimated  may  be  regarded  as  proven  by  the  fact  that  to 
secure  money  to  refund  $100,000,000  of  existing  indebtedness 
the  great  city  of  New  York  has  been  obliged  to  contract  to  pay 
six  per  cent  per  annum  and  to  liquidate  the  entire  loan  within 
fifteen  years,  while  in  renewing  short  term  notes  the  New  York 


105 


Central  has  agreed  to  pay  seven  per  cent,  and  its  enormously 
wealthy  subsidiary,  the  Lake  Shore  and  Michigan  Southern, 
has  agreed  to  pay  six  and  three-quarters  per  cent.  Another 
consequence  already  registered  is  the  failure  of  many  munici- 
palities to  place  their  securities. 

The  Commercial  and  Financial  Chronicle  of  August  29, 1914, 
shows  that  during  the  month  of  August  American  municipali- 
ties advertised  more  than  ii?9,000,000  for  which  purchasers  were 
not  found.     The  list,  which  is  probably  incomplete,  follows  : 
Interest 


Place  offering  bonds — Amount.  Rate. 

Asbury  Park.  N.  J....  $50,000    4^% 
Allen     County,     Ind. 

(3  is.) 

Acton  West  and  South 
Water  Suppl}'  Dist. , 

Mass 

Albion,  N.  Y 165.000 

Arcanum,  Ohio 26,786 

Ashtabula        County, 

0 20.500 

Biddeford.  Maine 25,000 

Benicia     Sch.     Dist., 

Cal 18,000 

Breckenridge,  Minn  ..  12,000 

Billings,  Okla.  (2  is.).  30.000 

Defiance  County,  Ohio  $5,200 

Delaware,  Ohio  (2  is).  10,050 

Delaware  County,Ind.  8.400 

Delta.  Ohio 15,000 

Des  Moines,  Iowa 110,000 

Delphos,  Ohio 16,044 

Dunbar  Twp.    S.  D., 

Pa 35,000 

Essex  County,  N.  J...  250,009 
Fostoria,    Ohio  (2  is- 
sues)   23,450 

Franklin  County, Ohio 

(2  issues) 48,000 

Floyd  County,  Ind....  52,i)60 

Granger,  Tex 15,000 

GuernseyCounty,Ohio  17,000 
Guernsej  County, Ohio  5,750 
Glendale,  Ariz.    (3  is- 
sues)    46,000 

Grant  County,  Ind 24,420 

Glenwillow  Sch.  Dist., 

Ohio 7,000 

HamillonCounty.Ohio  *800,000 
Henry    County,   Ohio 

(7  issues) 76,000 

Henry  County,  Ohio. .  9,050 

Jolinstown,  Ohio 5,000 

Lakewood,  Ohio 31.416 

Lake  City,  Fla 79.000 

Lamar  County,  Texas  50,000 

Larchmont,  N.  Y 6,000 


68,000    W. 


9,000      4% 


5% 

5% 

4% 

5% 
5% 
6% 
6% 
5% 

5% 

^% 

5% 

5% 

4i% 

5% 

5% 

^h% 

5% 
5% 
5% 

Q% 
H% 

5% 

5% 
50/ 

0,-n 
5% 
5% 
5% 


Interest 
Place  offering  bonds — Amount.  Rate. 

Butler,  Mo $75,000  5% 

Columbus  Sch.  Dist., 

0 210,000  U% 

Clarence,  Mo 10,000  h% 

Cincinnati.  Ohio 100,000  4^% 

Ceylon,  Minn  8,000  h% 

Chicago  Junction,  O.  27  561  5^% 
Converse    County,   S. 

D.  No.  10,  Wyo 3.000  U% 

Clay  County,  Fla 150,000  5h% 

Cass  County.  Ind 25,500  4^% 

Cumberland.  Md 150,000  4:hX 

Decatur  County,  Ind.  4.360  U% 

Decatur  County,  Ind.  8,200  U% 

Defiance  County,  Ohio  11,000  5% 

01ean,N.Y.(ll"issues)  $59,013  4i% 

Oxford,  Ohio 6,500  5% 

Painsville,Ohio(2iss.)  8,500  5% 
Poplar     Sch.      Dist., 

Calif 2,800  6% 

Piqua    School    Dist., 

Ohio 50.000  4^% 

Pulaski  Sch.  Dist.,  Va.  58,000  5% 
Parke     County,    Ind. 

(2iss.) 8,530  ^X 

Portland,  Maine 150,000  4"^ 

Pulaski  County,  Ind..  3,740  ^h% 

Putnam  County,  Ind.  4,860  4|'V 

Piqua,  Ohio  (2  issues)  29,498  4% 

Portage,  Wise 30,000     

PauldingCounty.Ohio  14,000  5% 

Rocky  River,  Ohio....  27.392  5% 

Ripley,  Tenn 15,000  5% 

San  Diego,  Calif 400.000  5% 

Sandusky,  Ohio 41.000  4^% 

Sandusky,  Ohio 70,000  4i% 

Summit  County,  Ohio  89.794  5% 

Salem,  Ohio 25,000  4:^% 

Smokey  Hollow,  Minn  8.000  6% 

South  Amboy.  N.J... .  15,000  5% 

St.  Mary's,  W.  Va....  12,000  5% 
Springfield  Sch.  Twp., 

Ind 3,500  5% 

Sulphur  Springs,  Tex.  30,000  5% 

San  Angelo,  Texas....  80,000  5% 

Sandusky,  Ohio 70,000  ^% 


106 


Interest 
Place  offering  bonds — Amount.  Rate. 
Loraia  County,  O.  (3 

is.) 37.000  5% 

Multnomah  Co.,  Ore. .    625,000  ^% 
Marion   County,    Ind. 

(2  issues)  28,000  4i% 

Marion  County,  Ind...     19,000  ^% 
Mercer  County,  Oliio 

(10  issues) 131,000  5% 

Muskiu2:um  Co.,  Ohio  200,000  5% 

Miami.  Fla 250.000  5% 

Madison  County,  Ohio     30,000  5% 
Modesto  Irrigation 

District,  Calif7 610,000  6% 

Muroc    Sch.    D  i  s  t., 

Calif 3,600  5% 

Montrose,  Mo 0,000  5% 

Marion  County,  Ohio.      10,000  5% 

Mediapolis,  Iowa 4,000     

New  Boston,  Ohio....     92,000  5% 
Northfield     Sch.     D., 

Ohio 25.000  5% 

New  Vienna,  Ohio....       3,500  5% 

Newton  County,  Ind..       7,182  5% 

Newton  County.  Ind..     10,000  4^% 
New    Boston,    S.    D., 

Ohio 25,000  5% 

Nelsonville.  Ohio 4,028  5% 

New  Philadelphia  Sch. 

Dist.,  Ohio 20,000  5% 

Noble  County,  Ind....      17.040  4^?^ 

Normal.  Ill 18,000  5% 

New  Athens.  Ohio  ...        2,940     

Olmstead  Twp.,  Ohio.       8,325  5% 


Interest 
Place  offering  bonds — Amount.  Rate. 
TrnmbullCounty,Ohio 

(2  issues) 72,000  5% 

TrumbullCounty.Ohio  100,000  5% 

Tliief  RiverFalls,Minn  10,000  5% 

Toledo,  Ohio 180,000  ^% 

Trenton,  N.  J 170,000  4|% 

Trelipe,  Minn 15,000  6% 

Utica,  N.  Y 40,000  4^% 

Van  Buren    Twp.   S. 

D.,  Ohio 1,400  5^% 

Veblen  Ind.  S.  D.  So. 

D 25,000  

Williamson,  W.Va....  150,000  5% 

Waterbury,  Conn 100,000  4^% 

Wyandotte      County, 

Kan 500,000  

Wyandotte,   Mich.    (2 

iss.) 40.000  ^% 

Wood  County,  Ohio..  24,833  5% 

Winston-Salem,  N.  C.  428,000  5% 

Warren,  Ohio  (4  iss.).  52,000  5% 

WoodlynneS.D.,N.  J.  3,700  5% 

Washin,?tonC.H.,Ohio  1,875  4^% 
Wilmington,  Ohio,  (3 

iss.) 47,163  5% 

Yankton,  So.  Dak 60,000  5% 

Youngstown,  Ohio  (12 

issues) 114,050  5% 

Yuma  County,  Ariz...  500,000  5% 

*  Offered  without  success   on  two 

different  occasions,  first  as  ^x%^  then 
as  4^%. 


The  foregoing  includes  long-term  muni(;ipal  bonds  only. 
There  has  been  difficulty  also  in  negotiating  temporary  loans. 
Ordinarily  municipalities  in  Massachusetts  borrow  quite  fre- 
quently on  short-time  notes,  but  during  August  only  a  few  such 
loans  could  be  negotiated.  The  Treasurer  of  Worcester, 
Mass.,  recalled  requests  for  bids  which  he  had  sent  out  for  a 
loan  of  $150,000  in  anticipation  of  revenue.  This  action  was 
taken  because  it  appeared  that  the  lowest  rate  of  interest  ob- 
tainable was  six  per  cent.  The  County  of  Middlesex,  Mass., 
asked  for  bids  until  August  11  for  a  loan  of  $100,000  to  be 
paid  on  November  11, 1914.  No  bids  were  received,  but  subse- 
quently one-half  of  the  loan  was  negotiated  in  Boston  at 
6  per  cent.  Canadian  municipalities  had  difficulty  in  floating 
new  issues  before  the  outbreak  of  war,  which  has  imposed 
a  further  embargo.    The  city  of  Ottawa  advertised  for  tenders 


107 

for  $965,950  four  and  one-half  per  cent  and  $190,000  five  per 
cent  debentures  without  receiving  a  single  offer.  Bankers  who 
made  advances  to  the  city,  pending  the  opening  of  bids,  will 
not  give  further  loans,  it  is  reported,  until  the  debentures  are 
disposed  of,  and  in  the  meantime  it  is  probable  that  municipal 
work  will  have  to  be  suspended.  Other  recent  offerings  by 
Canadian  municipalities  have  been  unsuccessful  and  much 
contemplated  borrowing  has  been  curtailed.  In  a  majority  of 
cases  included  in  the  table  not  a  single  bidder  appeared. 
Bonds  actually  placed  amounted  to  only  $5,500,000,  while 
those  withdrawn  from  the  market  after  the  date  for  receiving 
tenders  had  been  fixed  amounted  to  $6,250,000. 

A  careful  tabulation  of  the  funded  indebtedness,  including 
notes  made  payable  one  year  or  more  after  their  date,  of  the 
railways  of  the  United  States  which  had  gross  receipts  in  the 
fiscal  year  1912  of  $1,000,000  or  more,  shows  that  from  June 
1,  1914  to  December  1,  1919,  they  will  have  maturing  such 
obligations  in  the  enormous  aggregate  of  $1,013,207,774  as 
follows : 


Maturing  dur- 
ing the  calendar 
year 

Bonds  and    notes,   ex- 
clusive of  equipment 
trust  obligations  and 
notes  made  to  run  for 
less  than  one  year 

Installments  on 

equipment  trust 

obligations 

Total 

19141.... 

•136,981,800 
467,866.329 
68,487,173 
84.359,949 
47,608,803 
79,512,752 

$16,935,750 
49,757,798 
45,765,419 
53,004,801 
31,715,100 
31,212,100 

$53  917  550 

1915 

517,624,127 
114  252  592 

1916 

1917 

1918 

137,364,750 

79,323,903 

110,724,852 

1919 

Total 

$784,816,806 

$228,390,968 

$1,013,207,774 

1  June  1  and  thereafter. 


108 

A  similar  tabulation  for  roads  which  earned  $500,000   or 
more,  or  less  than  $1,000,000,  is  summarized  below  : 


Maturing  during  the 
calendar  year 


1914 

1915 

1916 

1917 

1918 

1919 

Total 


Bonds  and  notes 

exclusive  of 

equipment  trust 

obligations  and 

notes  made  to 

run  for  less  than 

one  year 


^        30,000 

21,518,000 

769,000 

40,000 

1,964,600 

5,589,000 


$29,910,600 


Installments  on 

equipment  trust 

obligations 


154,287 
602,672 
537,836 
306,000 
219,000 
143,000 


$1,963,795 


Total 


B      184.287 

22,120.672 

1,306,836 

346,000 

2,183,600 

5,732,000 


$31,873,395 


The  latest  available  figures  show  that  on  June  30,  1913, 
railways  earniug  $1,000,000  or  more  had  outstanding  loans  and 
bills  payable,  made  to  run  less  than  one  year,  aggregating 
$277,721,171.  They  probably  have  a  larger  aggregate  out  at 
the  present  time,  but  assuming  the  same  amount  to 
be  in  existence,  it  appears  that  there  are  now  out- 
standing no  less  than  $1,322,802,340  (see  Appendix  C 
for  the  details  concerning  this  aggregate,  together  with  a 
summary  of  maturities  by  months),  which  must  be  met  before 
the  end  of  the  calendar  year  1919.  Unquestionably  the  whole 
of  this  huge  aggregate,  plus  any  new  financing  that  cannot  be 
avoided,  must  be  refunded,  that  is  provided  for  by  the  sale  of 
new  securities  or  the  acceptance  of  new  securities  in  exchange 
for  those  now  outstanding.  It  is  not  to  be  expected  that  the 
financial  consequences  of  the  war  will  cease  to  operate  with 
profound  intensity  during  this  period. 

All  this  means  that  only  the  absolutely  necessary  capital 
requirements  of  the  railwaj's  can  be  satisfied  and  that  even 
these  necessary  arrangements  will  be  made  with  difficulty  and 
in  all  probability  at  high  rates  of  interest.  In  order  to  pay 
one  per  cent  additional  interest  on  $1,000,000,000,  about  one 


109 

twentieth  of  their  capital,  operating  expenses  and  taxes  ab- 
sorbing three  fourths  of  the  gross  receipts,  which  is  not  ex- 
cessive, and  assuming  average  receipts  per  ton  per  mile  of 
seven  mills,  about  the  present  rate,  the  railways  would  have 
to  move  5,714,285,714  more  tons  of  freight  one  mile  than  they 
now  move — they  are  likely  as  has  been  shown,  to  move  much 
less  than  they  now  move.  And  this  is  assuming  that  the  ad- 
ditional traflSc  conld  be  handled  without  additional  facilities 
(capital  investment)  which  is  probably  untrue. 

Conclusions. 

It  has  been  shown  that  even  prior  to  the  European  War 
the  raihvays  were  not  receiving  revenues  adequate  to  their 
necessities  nor  sufficient  from  the  point  of  view  of  public 
welfare.  It  has  been  shown  that  the  immediate  effect  of  the 
war  has  been  to  produce  a  rise  in  the  rate  of  interest  and  to 
make  it  difficult  to  procure  necessary  capital  upon  any  terms. 
It  has  been  shown  that  even  in  the  event  of  an  early  cessation 
of  hostilities  these  financial  difficulties  will  continue  probably 
for  several  years.  Not  only  will  these  conditions  accentuate 
the  necessities  for  additional  revenue,  making  them  not  less 
than  imperative,  but  they  will  deplete  railway  traffic,  reducing 
gioss  receipts  in  about  the  same  proportion,  without  permit- 
ting anything  like  corresponding  reductions  in  necessary  ex- 
penses, without  permitting  any  reduction  whatever  in  interest 
charges  and  probably  none  in  railway  taxes. 

It  should  be  remembered  that  the  inadequacy  of  railwa}' 
revenues  has  been  forced  upon  the  railway  industry  by  the 
Federal  and  State  governments  through  a  system  of  regula- 
tion of  rates  and  services,  which,  first,  imposed  upon  the  rail- 
ways rates  fixed  with  relation  to  earning  power  so  that  in 
normal  times  no  margin  of  profit  over  a  barely  reason- 
able return  on  the  value  of  their  property  might  be 
earned,  thus  leaving  no  margin   for  emergencies  of  any  sort 


110 

and,  later,  in  the  recent  advanced  rate  case  declared  that  even 
in  the  face  of  revenues  made  inadequate  by  the  fall  in  the  value 
or  purchasing  power  of  money  (that  is  the  rise  in  wages  and 
cost  of  fuel  and  other  supplies)  they  must  not  be  allowed  even 
such  a  reasonable  return  until  definite  changes  favored  by  the 
public  authorities  and  held  by  them  to  be  possible  could  be 
put  into  execution. 

The  railways  are  in  a  position  to  say,  as  President  Wilson 
said  on  September  4,  1914,  in  asking  Congress  to  provide  the 
Federal  government  with  increased  revenues  : 

"  The  occasion  is  not  of  our  making.  We  had  no 
part  in  making  it.  But  it  is  here.  It  affects  us  directly 
and  palpably  almost  as  if  we  were  participants  in  the 
circumstances  which  gave  rise  to  it." 

In  this  situation  the  utmost  caution  should  be  used  in  the 
selection  of  the  objects  for  which  capital  is  asked  or  supplied. 
The  diversion  of  any  portion  of  the  capital  fund  from  the 
necessary  to  the  merely  desirable  would  be  profligacy  worthy 
of  the  strongest  condemnation.  No  American  governmental 
agency.  Federal,  State  or  Municipal  should  seek  to  borrow  or 
be  permitted  to  borrow  a  dollar  for  any  unnecessary  or  unpro- 
ductive purpose  and  the  railways  should  seek  to  limit  and 
should  be  permitted  to  limit,  their  borrowings  to  refunding 
and  to  the  absolutely  necessary.  The}''  must  not  be  required 
to  undertake  any  unproductive  improvements  or  to  divert  any 
of  the  restricted  volume  of  capital  they  can  procure  to  any 
purpose  that  is  not  of  primary  importance  and,  for  that  reason, 
certain  to  be  immediately  productive  of  at  least  sufficient 
revenue,  even  under  adverse  conditions,  to  meet  the  added 
capital  charges.  Moreover,  if  the  situation  is  not  speedily  to 
proceed  from  one  of  difficulty  to  one  of  disaster  there  must  be 
additional  revenues  and  there  can  be  no  additional  taxation. 


12346] 


fosrism 

i-iNfJ 

EEYISED  !0  BE  CCMPJ 

kRATITTR. 

Avg.Ho.of 
Tons  of 

Freight 

Per 
Train 

Mile 

• 

Jg  Of 

l7k(*rease 
Over 
1890 

%  of 
Increase 

Over 
First 
5  or  10 
Years 

Per  Mile 
Single 
Track. 

Per  Mile 

Main 
Track 

Per  Mile 

All 

Track 

-I. 
2. 
7. 

5. 
5. 

#2,300. 
2,262. 
2,404. 
2,313. 
1.946. 

#2,165.23 
2,125.02 
2,140.29 
2,165,40 
1.820.28 

#1,800.03 
1,758.89 
1,849.83 
1,770.59 

J^  448. 05 

176.12 
181.67 
181.79 
183.97 
179.80 

2. 

2.83 

#2.240. 

#2.079.54 

#1.728.77 

180.61 

7. 
2. 
9. 
5. 
9. 

1,967. 
2,072. 
2,016. 
2,325. 
2.435. 

1,839,35 
1,940,00 
1,864.78 
2,171.25 
2,272.76 

1,498,87 
1,577,24 
1,527.04 
1,750.07 
1.825.52 

189.69 
198.81 
204.62 
226.45 
243.52 

0. 

10.20 

7.17 

2.166. 

2^024.38 

1.638.47 

213.46 

1. 

6.54 

2,201. 

2,050.63 

1,680-05 

197.32 

3. 
7. 
0. 
5. 
8. 

. 

2,729. 
2,854. 
3,046. 
3.133. 
2,998. 

2,543.74 
2,652.23 
2,625.02 
2,894.38 
2.759.46 

2,031,10 
2,103.35 
2,225.17 
2,266.59 
2.141.82 

274.63 
281.26 
296.47 
310.54 
307.54 

17. 

65.29 

60.74 

2,956. 

2,738.28 

2,155.89 

298.09 

3. 

40.52 

2.586. 

2.599.'J'6 

1.914*10 

268.17 

4. 

16. 
^. 

[9. 

1. 

3,189. 
3,648. 
3,696. 
3,143. 
3,419. 

2,921.11 
3,242,15 
3,^9,32 
2,850.34 
3.096,62 

2,255.17 
2,487.95 
2,562.97 
2,171.67 
2,351.51 

322.26 
344.39 
357.85 
351.60 
362.57 

6. 

114.07 

108.18 

3.399. 

3.094.19 

2.365.66 

352.52 

0. 

89.68 

78.08 

3.390. 

2.928.32 

2.269.44 

342.58 

56. 

155.27 
138.72 

(148.24 

132.30) 
124.17] 

3,764, 
3,429. 

3,406.47 
3,105.75 

2,576.96 
2,312.48 

360.38 
385.10 

L. ij 

UPSMO.    A 
(See  Pa»  T2SSI 

STATEHEST  fflOWi  HBT  RHTEHUE  FROM  OPBHiTIOHS  USED  BY  3ENAT0H  CUMMIHS,  ALSO  VBS  BEVjSHUJt  Jfflf  I3H) 
FOR  CQMPARi:     SiCWIHG  ODTStDE  OPKBATICSIS,    JOIHT  FACILITIES,   HIBE  OF  EUDIPMEHT  AHD 
PCBLUHEOOS  Bans  OF  ALL  BAILRQUBS  OF  THE  UNITED  STATES 
FOR  THE  YBAH3  1890  to  1918. 


YEAR 


1690 

1691 

1692 

1699 

1694 

F1T9  Year  Average 

1895   

1896 

1697 

1696 

1699 

Five  Tear  Average 
Ten  Year  Average  . 

1900 

1901 

1902  

1903 

1904 

Five  Year  Average 
Ten  Year  Average  . 

1905 

1906 

1907 

1908 

1909 

Five  Year  Average 
Ten  Year  Average  . 

1910 

1911 


NET  REVEfUB  USED  BY  MR»   018  13 


Operating 
Revenues. 


*1,051, 
1,096, 
1,171, 
1,220, 
1.075. 


877,632. 
761,395. 
407,345. 
751,871. 
361.797. 


#1.122.832,006. 

^^ — 3n;46Ji. 


175757 

1,150, 
1,122, 
1,247, 
1.313. 


169,376. 
089,773, 
325,621. 
610,116. 


$1,181,7137270. 


1,467,044,814, 
1,5B8,526,037. 
1,726,380,267, 
1,900,846,907. 
1.975.174,091, 


11,735,694,423, 


2,082,482,406, 
2,325,765,167, 
2,589,105,578, 
2,421,642,005, 
2.443.312,232, 


Operating 
Expenses. 


^^692,093,971 
731,887,893 
780,997,996 
827,921,299 
731.414.322 
$     752.663.096 


726:720; 416. 
772,989.044. 
752,524,764. 
817,973,276. 
656,968.999. 


765,235,300. 


961,428,511. 
1,030,397,270. 
1,116,246,747. 
1,257,538,852. 
1.3.38,896,253. 


1,140,901,927. 


12,372,441,478. 


2,786,679,616. 
2,818,780,398. 


1912 
1913 


1,390,602,152. 
1,536,877,271. 
1,748,515,814. 
1,687,144,976. 
1.615,497,234. 


1,595,727,469. 


1,846,702,780. 
1,935,511,581. 


Het  Reveni 

Frogn 
Operation 


#359,V33,6' 
364,1  73, 5< 
390, '.09, 5 
392,  (JO,  5' 
541.1  4-,'. 4 

$369.! 


15357 
377,; 
369,! 
429,; 
466. 


396, 


--A.'  ,  3^ 

■  .0( 

, ;-  3- 
•"'91 


525, 
558,. 


l>,3< 
3,7 


610,  i.''l,5; 
643,i<)8,0 
636,^77.6 
594,692,4' 


691,a80,2 
788,987,8 
840,589,7 
734,397,0 
827.814,9 


%  of 

lacrease 

Over 

1690 


Operatli^ 
Revenues . 


♦1,051,877,632. 
1,096,761,395. 
1,171,407,345. 
1,220,751,674. 
1.073.361.797 


$1.122.832.006. 
1,075,371,462. 
1,150,169,376. 
1,122,089,773. 
1,247,325,621. 
1.313.610.116. 


HET  RBygHUT!  17?JiD  BY  Vf,,   f^^f^n  RBYTg™  ""0  T>B  CCMPARATIYK. 
]  Out.  Oper.l  f  °^ 

%  of 


Otperating 
Expenses. 


#692,093,971. 
731,887,893. 
780,997,996. 
827,921,299, 
731.414._322, 


Oper. 

Jt.  Fdc. 

H.  of  E.  & 

Ulsc .Rents 

Dr. 


♦     752.663.096. 


1.181.71S.270. 


776,713,9.; 


1.152.272.639. 


1,487,044,814. 
1,588,526,037. 
1,726,380.267. 
1,900,846.907. 
1.975.174,091, 


1,735,594,425. 
1.458. 655. 64g7 


2,082,482,406. 
2,325,765,167. 
2,589,105,578. 
2,421,542.005. 
2.443.312,232. 


2.372.441.478. 


2.054.017.950. 


725,720,415. 
772,989,044. 
752,524,764. 
817,973,276 
856.966.999 


765.235.500. 


769.049.198. 


961,428,511 
1,030,397.270. 
1,116,248,747. 
1,257,538,852. 
1.336.696.255. 


Het  Bevenue 

From 
Operations. 


Increase 
Over 
1890 


1359,783,661. 

364,873,502. 

390,409,347. 

392,830,575. 

541.947.475. 
$369.968.911 


349,651,047. 
377,180,332. 
369.566,009. 
429,352,345. 
456.641.119. 


396.477.970. 


363.223.441. 


1,140,901,927. 
96g.066.6l3: 


1,390,602,152 

1,536,877,271. 

1,748,515,814. 

1,687,144,976. 

1.615.497,234. 


1.595.727.489. 


2,766,679,616. 
2,818,780,398. 


1.366.314.708. 


1,846,702,780. 
1,935,511,581. 


9,859,960. 
22.722,357. 


6.526.463. 


3.263.232. 


21,552,954. 
24,196,781. 


525,616,303. 
558,128,767. 
610,131,520. 
643,308,055 
636.277,836 


Increase 
Over 

First 
5  or  10 

Years 


Per  Mile 

Single 

Track. 


2.83 


10.20 


594,692,497. 


495.585,2537 


691,880,254. 
788,887,896. 
840,589,764. 
724,537,069. 
805,042,641. 


770.187.526. 


682.440.010. 


918,423,862. 
839,072,036, 


65.29 
40.52 


155.27 
136.72 


106.18 


$2,300. 
2,262. 
2,404. 
2,313. 
1.946, 


*2.240. 


1,967 

2,072. 

2,016. 

2,325. 

2.435 


2.166. 


2,201. 


2,729. 
2,854. 
3,046. 
3,133. 
2.998. 


2,956. 


2.586. 


3,189. 
3,548. 
3,696. 
3,143. 
3.419. 


76.06 


(148.24 

132.30) 
124.17) 


3.399. 


3.390. 


3,764. 
3,429. 


Per  Mile 
Main 
Trade 


$2,165.23 
2,125.02 
2,140.29 
2,166,40 
1.620.28 


12.079-54 


1,839,35 
1,940,00 
1,864.76 
2,171.25 
2.272.76 


2.024.38 


2,050.63 


2,543.74 
2,652.23 
2,625.02 
2,894.38 
2.759.46 


2,738.28 

2.399.»6 


2,921.11 
3,242,15 
3,359.32 
2,850.84 
3.096,62 


3.094.19 


2.928.32 


3.406.47 

3,105.75 


^er  Kile 
All 
Track 


$1,800.03 
1,758.89 
1,649.83 
1,770.59 
1.448.05 


Avg.Ho.of 
Tons  of 
Freight 
Pep 
Train 
Mile 


$1.728.77 


1,498,87 
1,577,24 
1,527.04 
1,750.07 
1.825.52 


1.638.47 


1.660.85 


2,031,10 
2,103.35 
2,225.17 
2,266.59 
2.141.82 


2,155.89 


1.914.10 


2,255.17 
2,487.95 
2,662.97 
2,171.67 
2.361.51 


2.365.66 


2.269.44 


2,576.96 
2,312.48 


Red  ^xgara     Indicate  Per  Cent   of  Increase   over  average    first   b  yfta 
Green  Figures  indicate  pep  cent  of  increase  over  average  first  10  y.  s. 


TEAB. 


1890 

1891 

1893 

1898 

1894 

Five  Te»r  Average.. 


1«95 

1896 

1897 

1896 

1899 

riiw  Tear  Average' 
Ten    Year  A^.eiag*. 


1900 

1901 

1902 

1903 

J904. 

Five  Tear  Average. 
Ten     7ear  Average. 


1905 

1906 

1907 

1908 

1909 

Flw  Tsar  Average. 

Ten  Tear  Average. 

1910 


1911.. 
1912.. 


NOTES t 

(•1  Do  not 
K»  Do  not 
3.      Do  not 

C.  Do  not 

D.  Kot  a 
#       In  1B9^ 


Bod   Fl 
Crew.   1 


Cost  0?  nOkJ)  t  EQmmSKT  AWD  llftTERJAL  t  SLTfLrE 


Q  P  I  r  II 


5{of 

Increase 

Over 

1890 


21.21 


96.74 


92.99 


108.75 
111.44 


»  T 


I  of  lua 

Over 

Tlrst 

6  or  10 

Tears 


i  63,785,950. 
64,661,495 
7&.016,897. 
75,755,170. 
6^  ,713,719 


t  68,S84,646. 


I  £0,123,916. 
68,744,042. 
63,605,455. 
67,431.264. 
72,446,051. 


61.8! 


(70.3S 
84.  2T 
(66.  (fi 


R0A3    A~"EO»ifinwT    AattnurERiATT 


Material 

and 
9u][i|>lles 


4  ^,519,173,331. 
8,262,184,660. 
8,639,411.727, 
9,013.300,930, 
9.136,184.251 


66.470.145. 


67.427.396. 


I  106,875, 
103.145,9  52. 
116,286.050 
148,178,206, 
158^6^06a 


irZ6.44"3.332.f 
i  96.456, 239.f 


#149,571,001 

185,228,347 

226,704.556 

•226,250,462 

•206, 8«  ,619 


198,880,797 


^0T6]'tl62.661.565 


244,931,724 


Amount 


8,514.050.979, 


I  9.263,614,636. 
9.569,071.775. 
9,772,974,683, 
9,628.012.686, 
10,034,286,856. 


9.693.6S4.107. 


9,103.817,543. 


386.  tlD 


1,870,188,785. 
10,808,241,037. 
10.7tS,607,426. 
11, 121. 683, 109. 
ll.grO.265.199. 


flO.  688 .79  6. 711, 


HO.  291, 190. 409. 


112.100,719,950. 
12,605.516.286. 
13. 267. 048. 884. 
13.440.017,002. 
13.716,033,134. 


13,023,867.051. 


tll.956. 33175^1: 


15,807,785,886. 


%  or 

Inorease 
Over 
1890 


ma£S_ 


of  Ine 
Over 
rirtt 
6  or  10 
Yt&rd 


73.21 
59.01 


15.86 


"51.33 


(86.67 


^kMt  accordingly. 


7E&B 


E.ap  I  F  R 


1890 

1891 

1892 

1898 

1694 

Five  Tear  Average. 


1895 

1896 

1897 

1896 

1899 

riye  Tear  Average. 
Tea     Year  A^^iage. 


1900 

1901 

1902 

1903 

1504. 

Five  Tear  Average- 
ten     Tear  Average. 


1905 

1906 

1907 

1906 

1909 

Flw  Tear  Average- 
Ten  Tear  Average, 
1910.. 


1911.. 
1912.. 


NOTES  I 

(•)  Do  not 
A«  Do  not 
3.      Do  not 

C.  Do  not 

D.  Vot  a 
#       In  1B9^ 


Red  Ti 
Creen   1 


Cost  0?  ROU)  t  EQmFHSHT  AHD  HATEBTAL  t  SCPPLrE5~ 


55  of 

Increaee 
Over 
1890 


78.02 


E6.U 


4     92.99 
108.75 
)lJ  111.44 


V  T 


of  ina 

Over 

Tlrst 

6  or  10 

Tears 


i  63,785.950. 
64,661,495 
7&.016,897. 
75,755,170. 
62.713,719. 


t  68,384,646. 


-I 


%  60,123,916. 
68,744,042. 
63,605,455. 
67,431,264. 
72,446,051. 


61.  ei 

30.6] ': 


(70.35 

(Sf.az 

84,27 
/86.65 


ROAD     k     ECmPWWT     iSO     MATERIAL  &"^fLI££ 


Material 

and 
Supplies 


4  7,619.173,331. 
8,262,184,660. 
8,639,411,727. 
9,013,300,930. 
9.136,184.351. 


66.470.145. 


67,427.396. 


I  106,675, 
103,145,9  52. 
116,286.050 
148,178,206 
158,726,068 


IT26.44"3.332.y 
t  96.456. 259Tf 


$149,371,001 
185,228,347 
226.704,556 

•226,250,462 

'206.8^,619 


'1198,880,797 
'fo.62,661,365^ 


244.931,724 


Inorease 
Over 
Anount  1890 


8,514,060,979, 


I  9,263,614,635. 
9.569,071,775. 
9,772,934,683. 
9,628,012,686, 
10,034,266,856 


9. 693. 564. 107. 


9.103.817,543. 


38&|U> 


,570,188,785, 
10,608,241,037. 
10,7r5,607,426. 
11,121,»83,109, 
ll.grO.265,199. 


JIO. 888.796.711. 


tlO.  291, 190. 409, 


$12,100, 
12,605 

13,267 
13,440. 
13.716, 


719,950. 
516,286. 
048,864. 
017,008. 
033,134. 


>, 023, 867 ,051. 


tll.956,S3i;i5r 


16,807,788,386. 


73.21 


B9.01 


of  Inc 
Over 
First 
6   or  10 
VcArS 


B2.3'7 


"51.33 


(86.67 
175.  « 


^that  accord  Ingrly. 


<  PROPCRTT  DrTESTHEBT  1 


s  1  »c  i 

Hlleage 

»  I  IP 

«  or 

Increase 
Over 

ACS 
i  of  IOC.' 

5  or  10 

OS       *fl  I 
lUlaase 

C   It          1 
,«  TPAC 

<or 
tojrtaee 

B  C  0«E 
t  of  Ino 

6  or  10 
Teare 

IS      n  tp  OR 

AIJ.  TUtiC 

dor 

Ov» 
Wleap           1990 

TEH    1 

*  Of    1.0 
Owr 

nret 
i  or  10 

Y«.r. 

teVHIOE  ATO  EXPniSES     Ot  C 

Escpeiues 
Reeeoue                       and  Taxes 

OPHPAMTIVt   a»3I3 

nn  tovmui 

U.r 

AMunt           1990 

Over 
6  or  10 

B  0  A  D     I     E 

Cost  07  ROAD  (  E0UIP113*  Am  wTTOaL  A  SCI+LIXS 

J  Of  ^s:.r 

locreaee    Tlret         luterlal                                          laoreaee 
Over       5  or  10          and                                                   Over 
1890         Teart         Supplies                   AjBouot               1990 

Over 

6  or  10 
V<&r5 

I56,t04,06 
1£1 .276.17 
162.397.K 
169  ,779,M 

166.164.40 
171,703.52 
192,409.90 
191,412.64 
197.964.41 

199.975.79 
207.445.66 

22li865.90 
229.795.79 

♦1.061,977,632. 
1.096.761,395. 

t        753.501,440. 
765,167,986, 
916,051.491. 

769|6»!696i 

« 

928,676,192. 
331,593,407. 
356.356,952. 
356.315,886 
303.822,201. 

♦7,455,387,381. 
#8,197,623,165. 

ei957i545;76o! 
9.073.470.532. 

♦  7  519' 173  331 

64,661,496 
75.016.897. 
76.765,170. 
62,715,719, 

8',639',41l!727! 

9.013.300,930. 
9,136,184,861, 

199« 

nve  T..r  Average.. 

166,108.47 

6.21 

»1.122.832.009. 

•       797,499,»1, 

1 

335,332,708. 

2.06 

♦9.445,666,333. 

13.26 

1  68,384.646. 

1  8.614,081,979. 

13.23 

177.7«6.t5 
lei .992.64 
1BJ.2M.2E 

■ie7i61«!68 

190.094.66 
194.422.40 

197i744!7r< 
200,919.96 

242!013'.46 

#1.075,371.462. 
1.160.169.376. 
1.122,099,773. 

lisuieioiue! 

t       765.552.949. 
912.959,635. 
796.662,609. 

eei.eoi.wo. 

905,3C«,631. 

t 

337 1209 1541 
326,427.165. 

41o!303;467 

♦9.203,490,619. 

9,600.321.733. 
9,709,929,228. 
9,760,581,494. 
9,»61.e4«,e05. 

*  „^ 

67!43l!26i; 

10.034,286,856. 

1999 

flw  Te*r  Iveraec.. 
Ita     Ye»r  A«™g*.. 

ISS.639.21 

17.02 

10.96 

VI. 191. 713 ,270. 

» 

5.61 

fc.627.lW.962. 

166,470.145. 

t  9.693.584.107. 

28.92 

19.66 

1741874.3* 

11.  50 

»    344,594.647. 

\  67,427,396. 

i  9.103,817,643, 

21.07 

192.556.03 
196.561,92 
200,164.56 
206 .313.54 
212.243.20 

206.631.28 
210.437.49 
216,974.43 
222,20,46 

269.794.90 

293.'921.E2 

197,073.34 

(1.487.044,914 

1,699.526,037. 
1,726,390,267. 
1  900,946,907. 
1.976.174.091. 

«  1,009,760.794. 
1.091.341.642. 
1,170,714,184. 
1.316,398,421. 
1.400.69J.6O7. 

• 

477,284,0110. 
907,194,996. 
665.666,093, 
595.488.486. 
574.681.494. 

♦10,263,913.400. 
10.405,099.096. 
10.66»,921.9T6. 
10,973,604.903. 
U.611.637.191. 

1  106.975,9«6.  ♦10.970.188,785. 
103.145,952.    10.609,241,097. 
116.2S6.05O     1D.7T3.607.426. 
148,179,206-  Il,l21.«e3.109. 
168.726.068j  ll.ffI0.263. 199. 

ISOl 

JM2 

1903 

ten    Tear  Average.. 

1906 

1906 

ISOT 

217,177.09 

So.TO 

22.07 

nc.S46.36 

92.04 

28.90 

fa.736.B9».423. 

♦1,196,699.529, 

ir  640,034,996. 

64.36 

«U0< 

no.762.954.379. 

44.36 

27.4 

♦126. 442.332 J»10.88e.796.711. 

44.81 

27.9. 

192,102.63 

24.64 

6,469,663.947, 

h,011i70».106. 

\ 

36,02 

Ko.194,734.170. 

36.74 

♦  96,466.239 

JlO. 291.190, 409, 

36.87 

216.973.61 

227^464.63 
•230.494,02 
•236.402.09 

236,966.07 
243.922,29 
2K>.22E.60 
•2H,U3,22 
•US  .974.  61 

306,796.74 
»17,0«3.15 
927,976.26 

•342."35li24 

• 

628.405, E76. 
714,102,281, 
760,277,389. 
640,761,200. 
716,016,415. 

♦1I.961.348.M9. 
12.420,217,938, 
13.090.344.328. 

•1S.213.7«»,640. 

•13.609,1»3,516, 

♦149.371.001. 
185.228.347. 

H2,lOO,719,990. 
U, 605, 516.986. 

2,925.766,167. 
2.699,105,678. 

1.611,662.986. 
1,829,928,169. 

Flw  Tear  Avenge.. 

Tea  Tear  Aveia^.. 

IS  10 

A  2,497,899,069. 

J  1.781,922,663. 

•206.849.619. 

13.716,033,134. 

•4S.J0 

■325.570.46 

•62.ee 

•62.19 

«2,892 ,266,015. 

*1,700!949!443. 

»1,912,672. 

110.67 

106.3. 

ta.»ti'M(.25t. 

74.02 

61.  i! 

Il98,890.7«7.|tl3.023:867.(t51. 

7S.21 

B4.97 

>11.74S,6»0,!l6. 

ffl.19 

SO.K  '♦l62.6Sl,565*l.«S6.S3l.SJl. 

SS.Ol 

Jl.SJ 

243.034.66 

59.  5a 

lie.  35 
42.4SI 

•266.1S4.66 
273,960.64 

U.91 

(42.44 

•361,766.09 
967.791.99 

•76.99 
94.01 

64.29 

B  i  9)3.602.507. 
0      TW.963,646. 

147.61 
128,26 

114;. 63 
IU6.10 
125.66 

n>.<.4 

•♦14.997.816,079, 
15,763,6«9.781 

(86.  as' 

(86.67 

A  l.»«9,10».»71. 

t  2.199.975.426, 

1912. 

*!•{    Tkft 

_^ 

^^ 

:  Include  Swltohlac  anA  TemliMl  BodOs. 

:  InclDle  Mlseellantow  R«ats  -  CreUt  -  fctr  9wltc)illi«  abA  Tvk1i»1  CoifABles. 
;  Include  Hire  of  Bqalpa«at,  Jolot  Taollltlea  uid  Vlseella mons  Bcots  -  Credit 
;  Include  Klr«  of  Bqalpwnt,  Jislnt  TtelUtles  ud  WtacellAmoQ*  lUiits  -  Cradlt 

t     Cn» maa*  Ccmnlsslon  »limlDatedl5tlM)0UDeo.fTvii  Ccst  of  Bud  : 


)  tBvc  rvdOQva  that  •ceiardlafly. 


■  averee*  flttt  lO  yetfs. 


Year 

..«  K.v»„« 

Total  K,q)eiue 
(InclndlriB  taa>l 

Het  Revenue 

iacreaae  over 
year  1990 

1991 

♦1,051,977,632. 
1.096.761,395. 
11171.407.943. 
11220.761,971. 
1,075,961,797. 

766,167,998. 
916,0IS1,491. 
864,496,999. 
T69.699.B96. 

»  329.676,152 
991,693,407 
956,355.652 
366.316,996 
303.922.201 

1W4. 

ATe>«e. 

1995 

1996 

1997 

1999 

1999 

AY..««. 

1»00 

1901 

1902. 

1909 

1904 

Averase 

1905. 

1906 

1907 

1909 

«0». 

Av»«W« 

»10 

IJll. 

1912 

1913 

1,122,962,009. 

2.06 

l,U2 .089,773. 
1,147,325,621. 
1,913,610,119. 

912.959,955. 
796,662,609, 
661,801,600. 
909.906,631. 

SdilswiAW 

337,209,541 
926.427,165 
396,624,121 
410,303,497 

363,856,586 

7.69 

1,BM.626,037. 
1.726.800.267. 
1,900.946,907. 
1,976,174,091. 

1.091.941.642. 
1,170,714,194. 
1,916,988,421, 
1,400,092,607. 

ossieeeioas 

686,468.496 

l!l95!tiW!628. 

640!034;e96 

2.326,765:167. 

1.464,076.851. 

l!929!e29!l9oi 
1,764,109.022. 
1,689,972,424. 

628 1405. 576 
711,102,291 

639i702,'9e9 

1.667,728.670. 

694.239.666 

2.789.761.669. 
9;om,'l69;769. 

1.926.426,184. 
2,029,90,817. 
2,091,»r9,977. 
9.142,941 .921. 

766i398il52 
ei4iz2li942. 

199.26 
114.48 

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AFFBIDK     D 
(See  Pa^   7255) 

STATEMENT  OF  EQUIHJENT,  NBT  RBVIMTJE  USED  BY  3H«AT0R  CnMJIHS,  NET  RETOmjE  USED  BT  SEKATOR  COMOHS 
REVXSED  TO  INCLUEE  OUTSIDE  0IGRATI0H3,  JOINT  FACILITIES  AND  KI SGELLANEOUB  BEffTS;  ALSO  SHOVHIKJ 
SAME  ITEMS  PER  MILE  OF  TRACK  AND  AVERAGE  NnUBSR  OF  TCNS  OF  iDEIOHT  PER  TRAIN  MILE  FROK 
1890  TO  1913  FOR  AH  ROADS  IN   TEB  DHIIED  STATES. 


MAINTEIUNCE  OF  ECUIPMJMT  PER  MLE 

NET  REVSNUS  USED  BT  HR.   CaUMUIS. 

NET  HEVKHOE  USD  BY  ip.  OmnOHS  REVISED  TO  BE  C01JPA2AT rJK . 

AvgJlb.of 
Tons  of  Frt. 
Per  Trtdn 
Mile 

YEAH 

Maintenance 

of 

Equipment 

Increaae 
Over 
1890 

jEof 

Increase 

Over 

First 

5  or  10 

Years 

Per  Mile 

Single 

Track 

A 

Per  Mile 

Uain 

Track 

A 

Per  Mile 
All 

Tracks 
A 

.         Bet 
Revenue 

St  of 

Increase 

Over 

1890 

%  of 
Increase 
Over 
First 
6  or  10 
Yeacs 

Per  Kile 

Single 

Track 

A 

Per  Mile 

Hals 

Track 

A 

Per  Mile 

All 
Tracks 

A 

Bet 

Revenue 

j£of 

Inoreaae 

Over 

1890 

>  Of 
Inoreaae 
Over 
First 
6  OP  10 
Years 

Per  Vile 

Single 

Track 

A 

Par  Mile 
Main 

Track 

A 

Per  Mile 
All 
Tracks 

A 

#114,038,756. 
117,047,095. 
128.712,016. 
136,875.909. 
112.894.526. 

$     729.13 
72S.77 
792.57 
806.20 
642.57 

$     686.30 
681.69 
705.62 
754.50 
595.64 

$     570.55 
564.23 
609.86 
616.94 
491.28 

$328,576,192. 
331,593,407. 
356,356,862. 
356,315,886. 
303,822,201. 

$2,101.00 
2,056.00 
2,194.00 
2,099.00 
1,729.00 

$1,977.42 
1,931.19 
1,953.60 
1,964.11 
1,617.33 

$1,643.90 
1,598.46 
1,688.48 
1,606.01 
1,322.14 

$328,676,192. 
331,593,407. 
356,355.852. 
356,315,886. 
303,822,201. 

$2,101.00 
2,056.00 
2,194.00 
2,099.00 
1,729.00 

$1,977.42 
1,931.19 
1,953.60 
1,964.11 
1.617.33 

$1,643.90 
1,598.46 
1,688.48 
1,606.01 
1.322.14 

175.12 
181.67 
181.79 
183.97 
179.80 

1891    

1893 

1694    

Five  Year  Average    

$121,913,820. 

6.90 

$     738.38 

1     685.26 

$     569.67 

$335,332,708. 

2.06 

$2,152.00 

$1,884.86 

$1,559.64 

$335,332,708. 

2.06 

$2,162.00 

$1,884.86 

$1,659.64 

180.61 

189S 

1896   

1697 

$113,788,709. 
133,381,998. 
122,762,356. 
142,624,862. 
150,919.249. 

$     640.18 
732.94 
669.79 
772.41 
804.75 

$     598.59 
686.04 
626.08 
721.26 
751.15 

$     487.79 
657.76 
507.25 
581.35 
603.33 

$309,818,614. 
337,209,541. 
326,427,165. 
385,524,121. 

410,303,487. 

$1,743,00 
1,853.00 
1,726.00 
2,088.00 
2,188.00 

$1,629.81 
1,734.42 
1,664.77 
1,949.60 
2,042.13 

$1,328.12 
1,410.09 
1,348.80 
1,571.42 
1,640.27 

$309,818,614. 
337,209,541. 
326,427,165. 
385,524,121. 
410,303,487. 

$1,743.00 
1,853.00 
1,726.00 
2,088.00 
2,188.00 

$1,629.81 
1,734.42 
1,664.77 
1,949.60 
2,042.13 

$1,328.12 
1,410.09 
1,348.80 
1,571.42 
1,640.27 

189.69 
198.81 
204.62 
226.45 
243.52 

1899 

Five  Year  Average 

132,695,435. 

16.36 

8.84 

$     728.23 

$     677.53 

t     548.37 

4353,856,586. 

7.69 

5.52 

$1,933.00 

$1,806.77 

41,462.33 

$353,856,586. 

7.69 

6.52 

$1,933.00 

$1,806.77 

$1,462.33 

213.46 

Ten    Year  Averag;   

$127,304,627. 

11.63 

$     731.32 

$     681.21 

1     558.37 

$344,594,647. 

4.87 

$1,980.00 

$1,843.93 

$1,511.43 

$344,594,647. 

4.87 

$1,960.00 

$1,843.93 

$1,511.43 

197.32 

1900 

$181,173,880. 
190,299,560. 
213,380,644. 
240,429,742. 
267,184,739. 

$     940.89 
793.09 
1,066.08 
1,171.04 
1,258.86 

$     876.80 

904.30 

988.02 

1,081.74 

1,168.76 

$     700.10 
717.16 
778.21 
847.12 
899.39 

$477,284,050. 
507,184,395. 
555,666,083. 

585,458,486. 
574,581,484. 

$2,479.00 
2,593.00 
2,776.00 
2,852.00 
2,707.00 

$2,309.83 
2,410.15 
2,572.84 
2,634.10 
2,491.88 

$1,844.33 
1,911.36 
2,026.53 
2,062.77 
1,934.14 

$477,284,030. 
607,184,396. 
555,666,083. 
585,458,486. 
674.581.484. 

$2,479.00 
2,593.00 
2,776.00 
2,862.00 
2^707.00 

$2,309.83 
2,410.15 
2,672.84 
2,634.10 
2,491.88 

$1,844.33 
1,911.36 
2,026.53 
2,062.77 
1,934.14 

274.63 

281.26 
296.47 
310.54 
307.54 

1902   

1903   

1904   

Five  Year  Average 

i2ie,49S,713. 

91.59 

79.24 

$1,086.14 

$1,006.06 

$     792.09 

$430,034,896. 

64.36 

61.04 

$2,685.00 

$2,486.61 

$1,950.67 

$540,034,896. 

64.36 

61.04 

$2,685.00 

$2,486.61 

$1,960.67 

289.09 

Tai     Year  Average 

$176,594,574.          63.98 

$     914.06 

$     850.28 

$     678.20 

$44  6,945,741. 

36.02 

$2,327.00 

$2,164.26 

$1,726.24 

$446,945,741. 

36.02 

$2,327.00 

$2,164.26 

$1,726.24 

468.17 

1905   

1906   

1907   

1908   

1909    

Five  Year  Average 

Ten    Year  Average 

$288,441,273. 
328,564,656. 
S68,0a,728. 
373.463,046. 
367,089,678. 

$1,329.39 
1,477.71 
1,618.18 
1,620.27 

1  ,  559  .42 

$1,217.80 
1,333.85 
1,470.92 
l,469.a 
1,412.02 

$     940.17 
1,036.17 
1,122.22 
1,119.34 
1,072.26 

$628,405,576. 
714,102,281. 
760,277,389. 
660,621,160. 
738,788,772. 

$2,896.00 
3,212.00 
3,342.00 
2,823.00 
3.138.00 

$2,653.12 
2,943.80 
3,038.36 
2,569.66 
2.841.77 

$2,048.28 
2,052.08 
2,318.09 
1,960.03 
2.167.99 

$628,405,575. 
714,102,281. 
760,277,369. 
640,761,200. 
716.016.415. 

$2,896.00 
3,212.00 
3,342.00 
2,780.00 
3.042.00 

$2,653.12 
2,934.80 
3,038.36 
2,620.77 
2.754.17 

$2,048.28 
2.062.08 
2,318.09 
1,920.48 
2.091.47 

322.26 
344.39 
367.36 
361.60  (A) 
362.57  (Al 

1346.122,076. 

202.64 

183.08 

».,S23.50 

$1,386.51 

$1,060.06 

f698,439,036. 

112.56 

108.28 

i3.038.00 

$2,806.06 

$2,145.28 

$691,912,672. 

110.67 

106.34 

$3,052.00 

$2,779.73 

$2,125.23 

352.52 

1281,607,894. 

147.12 

ia.37 

91,317.79 

il, 209.24 

$     937.46 

$619,236,965. 

88.46 

79.70 

$2,896.00 

$2,657.14 

$2,057.27 

$615,973,734. 

87.47 

78.76 

$2,880.00 

$2,643.14 

p,  048  .41 

342.58 

1910 

1911 

19 12   

$417,419,775. 
431,892,653. 

266.03 
278.72 

f 242. 39 

'f|j.^6> 
2a9.26l 

$1,793.25 
1,741.26 

$1,568.16 
1,577.11 

$1,186.64 
1,174.28 

$835,155,461. 
774,160,327. 
737,584,4'>5. 
814,221,842 

164.17 
136.61 
184.48 
U7.80 

'149.05 
{142.36 
130.86) 
124.66) 
(119.96 
(114.04 
142.81) 

ia&.^a> 

$3,468.00 
3,121.00 

$3,137.50 
2,836.94 

$2,374.17 
2,104.89 

$813,602,507. 
749,965,546. 

147.61 
128.25 

14^.63 
136.10 

123.65) 
117.64) 

$3,378.00 
3,023.00 

|3,0  56.53 
2,738.68 

$2,312.90 
2,039.10 

380.38(A) 
383.10(A) 

1913 

. 

BOTB  -  (A)  Miles  of  Switchlrg  anl  lennlnal  Companies  not  vsed  in  ooii;mtii«  the     flaares   In  1908,  1909,  1910  and  1911. 

RAl'F?W?eflKT"t;?^^^r"8*i?t'ST^,^r?i?e'(^e'5i'a^A^*ffrl^l^afl'.*''«    '^■*  ^'^^^  ^^  7253,.aiil  repreeeits    Net  Revenue  leas  Taxes. 
Srwn  Figures  indicate  Pep  Cent,  of  increase  over  average  first  10  years. 


MAME  or  £QAD 

CMc««o  k  £asterT\  Illinois  R.  R... 

Missouri, Kan&^  i  Texas  By 

ibbAsb  R.  R 

ChesApeaket  Ohio  ^..... 

T/blcagD,   St.PBUl.   Minn.   &  Onah«  I^ 

Chicago,   SUTllnffton  t  ^Incy  R.B.. 

Ceotnl  B.R.   of  H.  J 

Chicago,   Milwaukee  i  St.faul 

.New  York,   Chicago  &  Sciouls 


IKLECIEC  BOKDS 


First  Ifcrtjage 


Qlldated  Mortgage 


Mel^rasks  £j(tenslon  BonAs 
secured  by  deposit  of  lal 
Mt£  Bonds  of  tjebraslci  fich  Rd£ 
General  MorVg««e 


19'JO 
t  3, 679, boo, 

40,000,000 

2^,581,000 

22,021,000 


rjta  YALits  omsumiiiio 


24,6«0,000 
34,690,000 
6,102,000. 
19,764,000 
EO, 000, 000 


1909 
tl9,e5S.000, 

40,000,000. 

33.900,000. 
27,066,000, 
20,142,000. 
23,430,000. 
46,091,000, 


(21,343.000 
39,999,600 
53,900,000 
29,666,000 
20,573,000 
22,236,000. 
46,091,000 
48.641,000 


PREggRRED  I.ISH5 

MR  TAUa  Oni3T^»ll™l'- 


9  10,594.000.        I  7,727.000 


6.979,000, 
10,359,800 
52,916,602 
10,047,000 
117,691,000 


207,000, 
2,142,000 
6,332,000 
27.862,200 


14,204,000 

142,000 

7,974,000, 

16,662,200 


CAPITAL  S' 


EUR  VALUS  OUTSIAimillO 


29,1*0.700 
,426,413, 


HLB  VAUJS  OUTSIAUIIIIO 


156,313,600. 
6.380,000, 
16,197,000, 
10,000,000. 


1913 
t  40,867.000.' 

100,770,491. 

61,216,149. 

169,960,176.1 

9,000,000. 


196,404,754. 
10,000,000. 


1890 
111,663,000. 

60,000,000. 

52,000,000. 

71.000,000. 

34.060,126. 

76,394,506. 

18,629,200. 

61,708.661. 

30,000,000. 

10.000,000. 


76,300,500. 

92,282,906. 

79.491.400. 

34,050,126. 
110.839,100. 

27,436,600. 
232.623,100. 

3O,00O,X0, 
10,000.000. 


92.400,' 
62.796,1 


sMtaaiT  aiomo  the  reiatioi  or  cmTAn  3Q£cs3>  bows  usn>  n  sbutoi 

CUMMIES*  ADOREfiS.  TO  THE  PRIOR,  ADD  JUBIOB  U133,   THE  COST  0?  BOAD 
ABDEWmeNT,   TOm.  XSSEia,  etc.,  as  op  1690,    1909  A»D  1913, 
FOR  1HS  PQLLOimia  nousi 

COBPORATB       SURPLUS 


TOTAL  SECiraiTlJS  t  SUBPOJS 


"  384,021. 
6,631,164. 
17,700,013. 
2,600,442. 
^,419.514. 
224,122. 


X  3,045.119. 

1,873,856. 

3,876.663. 
54,860,096. 
10.939,486. 
47.960,996. 

1,772, as, 

8,415,580. 


t      949,999. 

6,223, U7. 
X  7.216,499. 

2,514,6X. 

4,592,020. 
91,039 ,1£6. 
U,13T,gE6. 
43,417,093. 

2,021,339. 
11,493,345.' 


1890 
}  26,999,381. 

124,311,220. 

130,781,423. 

107,138,979. 

64,104,964. 
200,809,720. 

66,665,055. 
189,921,STB. 

50,006,122. 

60.000,000. 


199,5«3,939. 
189 ,738 ,255. 

66,402,769. 
376.305,196. 

89,947,296. 
414,177.495. 

60,927,626. 

66,415,560. 


TACTOR   O? BA  TBII FOB   SRT.  BCIEB   ai!CllBlTlE3. 


Chloa«o  A  Eastfiirn  Illinois  R.R 

Missouri,  X^ansas  A  tens  Qy.  Oo.  ......... 

«hbuh  R.B.  Od 

Chesap««jEe  4  Ohio  ^.v....... 

Cni&aeo,  St  Paul,  lUnneApolls  4  (kiaha  By. 
Ohloago,  Airllnefeon  &  ^Ijwy  ^.   ......... 

Central  B.R.  of  Mev  Jers^  ........a...... 

Ohloaeo,   Mllwsalcee  4  St  Paul  ^.   Co.   ..... 

Hew  York,  OhlOACo  S  St  Louis  1^ 

I*e.st  Shore  B.R. 


IRCCIiIB  AVAILABLE  PQB  INTEREST,    ElO. 


1690 


t  1,009,433. 
2,4S6,346. 
3,039,712. 
1,469,'697. 
2,417,736. 
21,305,545. 
5,305,619. 
9,452,636. 
1,111,919. 


1909 


$  2,887,342. 

6,156,517. 

6,387,273. 
11,693,373. 

3,665,013. 
20,669,472. 

7,372,422. 
18,967,918. 

2,993,652. 


1913 


t  4,621,820 
8,602,347 
4,991,696. 

13,756.742 
4,106,197 

28,632,646. 
9,641,150. 

29,578,866, 
1,982,442, 


ANBUAL  CHABSfS  PREFERBED  UEBS 


ABUUAL  CBARSES  SELECTED  SECURITIES 


760,026, 

419,040. 

628,636 
2,788,368. 

638,560. 
7,009,363 


8,420. 
126,520 

496,430 
1,222,358, 


1890 


1909 


1913 


1890 


1909 


1913 


1690 


1909 


1913 


848,240. 
6,520 
474,940 
766,4581    It, 


I  696,513. 
2,435,340. 
2,259,667. 
1,(M0,6ET. 
1,789,099. 

,517,180. 

,666,969. 

,443,272. 

,111,919. 


$  2,469^982. 

6,156,517. 

5,378, 663. 
11,664,853. 

3.366,593. 
19,667,114. 

7,372,422. 
14,786,793. 

2,993,652. 


i  4,398,980. 

8,802,347. 

4,143,366. 
U,746,2S. 

3,630,267. 
27,664,190. 

9,941,150. 
26,886,766. 

1,962,442. 


t  163,950, 
1,600,000. 
1,U9,060. 
1,101,050. 

784,060. 

985,600. 
1,746,000. 

324,060. 

791,360. 
2,000,000. 


t  992.750. 
1,600,000. 
1,696,000, 
1,392,400. 
1,206,520. 

937,200. 
2,254,550. 
,023,200. 

766,200; 
2,000,000. 


11,067,160. 
1,599,960. 
1,696,000. 
1,392,400. 
1,234,360. 

eoa.sEo. 

2,264,560. 

1,969,640. 

755,200. 
2,000,000. 


(*)  Not  Available 
z      Deficit 


of  Consolidation  with  New  Yojic  Contral. 


224.29 
52.11 
100.14 
X  6.49 

129.10 
1,179.78 
167.00 
653.91 
40.51 


146.60 
284.79 
217.34 
790.56 
176.74 
1.998.60 
227.00 
690.86 
290.74 


312.22 

460.16 
144.46 
887.37 
194.10 

3,010.01 
336.50 

1,276.24 
162.51 


SMTBiaiT    3<0llIO  THE  REOATIOI  OF  OmUn  SOfiCKD  BOIDS  USH)   IB  SBttTOB 

OIWMnB"  ADDIIE63.  10  HIE  PIUOB,  AM)  JtlSlOB  LUIS,   THE  COST  0?  ROID 

ASDEailBem,  TOIU.  ASSEIS,  etc.,  as  of  1S90,    1909  Ajro  1913, 

FOB  THE  ?ca,U)Viirs  nousi 


1 771 

1  r  A  1.       SI 

0  C  K 

c  0  a  p  0 

BATE       3  U 

n  p  I  0  s 

TOTiJ.  SEcuniTira  t 

SURPUIS 

nVESlHBHT  IN  BOAS  t  EQIniVEllF 

PERCa'T  OP    UiVBSrMENT   IK 

TOTAl      A33BT3 

KBCOII  OP  I07AI  A6S273    tUSS 
WXrBSSZD  Loxai  in  BISZSS  01 
wiB.YAnip  or  mimwH)    boiid! 



YAIDK  OOTStiUai 

HO 

1913 

1890 

1309 

1913 

1890 

1909 

ma 

1890 

1909 

1913 

1890 

1909 

1918 

1890 

1909 

1913 

1890 

1909 

1913 

$11,663,000. 

$  22.616.100. 

t  25.617.800. 

$1,063,391. 

t    ao*.9OT. 

1       949.899. 

t  26,999,381. 

t  72,281,104. 

i  96,899  .69, 

}  28,477,936. 

i  88,140,040. 

t  79,977,646. 

70.99 

60.62 

70.41 

t  4,263,870. 

t  19,408,668. 

126,063,554, 

»  27,641,805. 

»  77,843,708. 

tl08.O81,20O. 

76.29 

71.56 

76.70 

60.000,000. 

76,300,500. 

76.300,300. 

638,220. 

1.073,989. 

5,22S,U7. 

124.311,220. 

169,620,289. 

22t,2»,4a6. 

124,654,876. 

192,8U,072. 

231,669,389. 

67.91 

79.25 

61.96 

2,074,243. 

9.576,170. 

21,603,065. 

126,731,118. 

202,387,242. 

233,172,484. 

68.44 

00.24 

82.96 

62,000.000. 

92,262,906. 

92,400,426 

TS1,«23. 

X  3,04S.119. 

X   7.216,4»9. 

130,781,423. 

199,583,939. 

zi*,so*jm. 

1X9,970,000. 

172,766,046. 

186,168,220. 

90,95 

80.38 

80.29 

3,464,841. 

37,627,224, 

51,894,989. 

133,434,841. 

ao  ,392,270. 

238,063,209. 

m.» 

80.67 

84.86 

71.000.000. 

70.491.400. 

62.796.600 

X    384,021. 

1,873,866. 

2,514,680. 

107,120,979. 

189,733,253. 

266,2  60,656. 

106,713,929. 

156,664,192. 

201,761,977. 

77.92 

81.64 

66.19 

2,688,683. 

39,227,098, 

74,674,206. 

109,402,612. 

194,791,250. 

276,436,183, 

78.0 

86.  M 

89.19 

M.0S0.U6. 

34,050.126. 

34,050.126. 

6,631,ia«. 

3,879,663. 

4,592,020. 

64,ie4,96«. 

66,402,789, 

76,189,146. 

58,132,485. 

63,446,785. 

72,085,443. 

72.66 

63.48 

67.91 

7,268,814. 

8,406,430, 

10,452,643. 

66,397,269. 

71,885.216. 

82,538,086. 

76.26 

66,29 

72.40 

76.39*. 506. 

U0.e39,100. 

110,839.100. 

17,700,013. 

S4,8«0,a6C 

91,0S9,U6. 

200.803,720. 

375,305,186, 

4U  .013.266. 

184,176,431, 

360,248,060. 

392,937,059. 

BUS 

92.98 

94.06 

82,601,398. 

76,015,216. 

91,991,893, 

236,777.826. 

436,260,276. 

484,928,962. 

06.51 

94.26 

96.23 

16.629,200. 

27.436.600. 

27.436,800. 

2,600,442. 

10,939,486. 

M,137,a6S. 

M,665,0EC. 

89,847,286. 

se,tG6.65e. 

48,608,008. 

69,680,058, 

78,864,522. 

10.04 

:6.c 

40.66 

26,010,138. 

34,516,679. 

48,481,656. 

73,618,146. 

103,966,737. 

119,346,178. 

45.43 

56.63 

62.22 

61,708.661. 

232.623.100. 

232.623,100. 

?,419,S14. 

47,960 ,S9D. 

43.417,093. 

189.821.3TB. 

4»4,I77.*»B. 

576,894.947. 

165.6S1.3D1. 

274,468,163. 

518,808,398, 

66.09 

74,41 

69.32 

10,693,000. 

169,031.641. 

76,394,122. 

196,324,301, 

<43,«9,804. 

695,202,616. 

89.71 

66.21 

90.62 

30,000,000. 

30.000,000. 

30.000.000. 

224.122. 

1,772,36. 

2.021,339, 

50,008,122, 

60,927,626. 

60,901.334. 

49,840.198. 

84,809,796. 

58,595,306. 

60.31 

64.66 

67.76 

1,272,330. 

U,954,013. 

9,626,976. 

51,112,528, 

66,463,809. 

68.121,282. 

61.29 

71.16 

72.26 

10,000,000. 

10.000.000. 

lO.OOO.OOO. 

8.415,580. 

11,493,345. 

60.000,000. 

68,415,580. 

71,493,348. 

60,000,000. 

69,416,680. 

71,493,346. 

16.67 

26.92 

30.06 

60,000,000. 

68,415,580. 

71,493,345. 

16.67 

26.92 

30.06 

lEI   3ECUBII1E3. 


AHOniT  AVAUABIE  FOB 

OJlARffiS  FOR  anBClEI)  SECOTIIIES 

AjnnJAL  CHASOES  SELECTEB  SEOUEIIIES       J 

HABOM   0?  3AMEf  TOR 
SELECTED  SE0UB1T1S3. 

1C90 

1909 

1913 

1690 

1909 

1913 

1890 

1909 

1913 

696,613. 

i  2,469,982. 

}  4,398,980, 

t     183,950. 

t     992,760. 

11,067,160. 

224,28 

M8,ea 

812.22 

2,436,348, 

6,156.617. 

8,802,347. 

1,600,000. 

1,600,000. 

1,699,980. 

52.21 

284.78 

460.16 

2,269,667. 

5,379,663. 

4,143.886. 

1,129,060 

1,696,000-, 

1,698,000. 

100.14 

217.34 

144.46 

1,040,687. 

11,864.663, 

1»,746,2CE. 

1,101,060 

1,392,400. 

1,392,400. 

X  8.49 

730.86 

887.37 

1,789,09^. 

3,366,693. 

3,630,267. 

784,060 

1,206,520. 

1,234,380. 

128.18 

178.74 

194,10 

18,617,160. 

19,667,1U. 

27,864,190. 

965,600 

937,200, 

869,820. 

1,178.76 

1,996.80 

3,010,01 

4,666.969. 

7,372,422. 

9,841,160. 

1,748,000 

2,264.660. 

2,264,680, 

167.00 

227.00 

336.50 

2,443,272. 

14,766,793. 

26,686,766. 

324,080 

2,023,200, 

1,963.640, 

663,91 

680.86 

1,276.24 

1,111,919. 

2,993,852. 

1,982,442. 

791,360 
2.000,000 

766,200J 
.       2,000,000, 

758,200. 
2,000,000. 

40.61 

290.74 

162.61 

UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

THIS  BOOK  IS  DUF^  THE  LAST  DATE 
STAMPED  BELOW 

to  $1.00  per  volume  affer  the  six?h  T^"''^"^'  'pc^easing 
demand  may  be  renewpH  if  I  ^■  .^^^^  ^ooks  not  in 
expiration  of  loan  perTod.        ^PP'^^^*'""  ^^  made  before 


OCT  5   192'? 


50to-7,'16 


he: 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


